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More price pressure ahead

Ray Grabanski Updated: 10/04/2012 @ 3:27pm President, Progressive Ag www.progressiveag.com

Finally, crop estimates for the October USDA report are flowing in, and they might make the bullish Sept. stocks report a mute point. Recall that report showed corn stocks at 170 mb smaller than expected. 

But, already yield estimates for corn and soybeans are rolling in, and they are recognizing that yields are better than expected (corn) much better than expected (soybeans). FC Stone released their crop reports yesterday, and they estimated corn at 123.9 bu/acre and soybeans at 38.2 bu/acre.  

USDA yields in September were dropped to 122.8 bu/acre corn and 35.3 bu/acre soybeans, but Pro Ag yield estimates are currently at 129 bu/acre corn and 38.7 bu/acre soybeans - well above USDA's numbers and also above some of the private estimates (which will likely go up again in November).  You would think that the October estimates would be very accurate, as corn is already 55-60% harvested, and soybeans about 50% harvested - well above normal!  

We have recently dropped our corn yield estimate to 129 bu/acre from 131 as the past few weeks have seen our yield models dropping slightly.  But, soybeans continue to expand, with yield models now saying soybeans are at 38.6 bu/acre.  If they keep expanding, even yield models based on soybean crop condition ratings will get to our yield of 38.7 bu/acre.  With harvest yields being surprisingly good for both corn and soybeans, perhaps the yield model estimates are too low?

Readers of this column might be tired of reading about the larger than expected yields, and their impact on prices as projected by Pro Ag (harvest lows expected at $6 Dec corn and $14 Nov. soybeans).  After all, we've been writing the same thing the past month!

But, until the market understands the importance of this one fundamental, it will continue to influence the market.  So, until USDA numbers and private numbers from all sources are at 129 bu/acre corn or higher, and 38.7 bu/acre soy yields or higher - then the higher than expected yields are not built into the market yet.  

Pro Ag was impressed to see corn trade limit up Friday with a small change in stocks numbers of only 170 mb (relative to yield impacts of 810 mb or more); but perhaps that just indicates how much corn prices will eventually retreat when we realize we have 810 mb more production to deal with.  And remember, USDA also found 3 million more planted acres from FSA planted acreage figures that they still need to incorporate into final planted acreage figures.  

So, look for increased private estimates coming out the coming week in corn and soybeans, and USDA likely to show even larger yield hikes as they have a far wider survey that they conduct, and with harvest yields surprisingly good in most areas, it will be hard even for USDA to miss this large target! Look for USDA to hike corn yields to 125-126 bu/acre in this report, and more hikes likely in the November report.

Look for soybeans to be hiked from 35.3 to 37.3 or larger, with their final revision likely in the November report to get up to 38.7 bu/acre or larger.   

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