Corn and soybeans have more upside potential

By Jon Scheve

USDA September Report:

On Friday, the USDA significantly lowered the corn yield while slightly raising soybean yield. That is puzzling because widespread Midwest dryness from mid-July through mid-August affected both crops. Even with improved conditions in late August, I expected both yields to move in the same direction.

Corn:

Unlike last September, when the USDA added nearly 1.4 million planted acres, this year’s increase was only 100,000 acres.  They also recognized the dry conditions throughout the Plains and reduced the estimate for harvested corn acres slightly.  Long term, this seems more bullish than bearish to me.

The USDA also made a substantial reduction to the Feed & Residual category, which I’ve said for over a year was very overstated.  Lowering demand may sound bearish, but I doubt the USDA will adjust this category again anytime soon, unless it needs to raise carryout because of a production reduction.

The USDA also increased last year’s corn exports slightly.  This year’s forecast is 5% lower, but would still be the second highest on record.  Right now, U.S. corn isn’t the cheapest globally, but South America’s weather is still a wildcard due to El Niño.  Brazil’s second corn crop in Mato Grosso, which starts getting planted in late February and pollinates in May, could still be heavily affected in the first half of 2027.  

This year’s 1.57-billion-bushel carryout isn’t as burdensome as last year’s 2.1 billion, but it’s still comfortable.  The carryout would likely need to fall below 1.4 billion before the market really got excited.

Corn was trading 6 cents lower before the report, rallied 14 cents immediately after, and finished the day slightly lower but ahead of where it was pre-report.  The USDA also increased its national average on-farm price forecast to $4.80 up from $4.15 last year.  With basis levels across the country usually averaging -10 to -20, this suggests the USDA expects the average farmer’s futures sales to be above $4.90, and potentially near $5.  I think this suggests sub $5 futures is not as big of a concern longer term for this marketing year.

Soybeans:

Soybeans were down 25 cents before the report and fell another 6 cents after the report to finish 31 cents lower for the day.  Considering that the USDA didn’t reduce the soybean yield, that price reaction seems more positive than negative.

U.S. crush capacity is also expected to increase 5% over last year, while carryout is projected to be tighter than last year.  Together, these factors suggest downside risk for soybeans could be limited.

The biggest variable is always U.S.-China trade relations.  Plus, a severe El Niño could peak around New Year’s, just as soybeans in Mato Grosso are blooming, which could make the bean market more volatile in late December.

I think soybeans have significant upside potential, and the chance for $14 seems to be improving, as long as no trade issues arise between the U.S. and China.  And if dry weather persists in Mato Grosso throughout December and January, the market could quickly be spooked into a rally toward $15.

Bottomline:

I’m optimistic about the direction of corn and soybean prices over the next 6 months.

Please email jon@schevegrain.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans, and other grains for the last 25 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 15 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential, and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.