Market Moves as USDA Quantifies Crops
The August Supply and Demand Report can be a big market mover as the USDA attempts to quantify crops. Yet, it doesn't appear this year's August report had much influence in expectations or the actual figures. Weather this spring and summer has been challenging along the way, yet as a whole, outstanding for most producers. This year's crops are on the eve of big production numbers that will likely be reflected in future USDA reports. A basic recap is listed below with some opinion.
The average yield for corn was anticipated at 170 bushels per acre prior to the report. The actual figure was 167.4. While larger than the July estimate of 165.3, it was less than anticipated, and corn prices moved little, yawning at the report. Expectations are that the September report could show an increase in production, and we believe the market will anticipate this over the next month. Projected production is now 14.032 billion, below the average estimate of 14.239. The lower yield was reflected in carryout, which is now forecast for the 2014/15 crop at 1.808 billion bushels versus an average estimate of 2 billion. No changes were noted on expectations for the southern hemisphere corn crops. As for world ending stocks, corn was reduced slightly from an average estimate of 190.96 million metric tons to 187.82.
Soybeans saw slightly negative report figures with U.S. carryout projected at 430 million compared to 409 million on the average pre-report estimate. Last month's figure was 415 million. Yield is anticipated at 45.4 bushels per acre, which compares to the average estimate of 45.5. Total production is now estimated at 3.816 billion versus an average pre-report estimate of 3.825 billion. World projected carryout for the year ahead is 85.6 million metric tons versus the average estimate of 86.1 million.
All wheat production came in slightly larger for the U.S. at 2.030 billion bushels versus an average estimate of 2.013. This was viewed as slightly negative as was projected world carryout at 192.9 million metric tons versus and average estimate of 190 million. Projected U.S. carryout for the year ahead, however, was unchanged at 663 million versus the pre-report estimate. With harvest quickly becoming old news, the market will likely stabilize.
If looking at price movement a couple hours after the report was released, one would hardly know it was a report day. The reaction was subdued, and all attention will once again focus on weather for the remainder of August and then early September. This will give traders perspective of whether or not the crop will add extra bushels, or perhaps the biggest numbers are already old news. Whatever the case, pay attention.
The one variable that could quickly change the supply and demand picture is an early frost. While this is something that has historically rarely occurred on a wide-scale basis, there are enough corn and beans in the northern tier states struggling with cool temperatures after a late planting start that one has to at acknowledge this could be a concern. Buyers of corn and beans, as well as those who have aggressively forward sold, should consider out-of-the-money call options as safety valves in case prices were to rocket higher should an early freeze occur.