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Yield hikes seen for next report
Last week we talked about how the USDA Sept. report may hold some surprises. Well, the crop sizes in corn were about as anticipated, with the 148 bu yield and 5 bu/acre yield cut were well anticipated by the trade.
However, the soybean production estimate was a surprise in that the yield included a hike in production, to 41.8 bu/acre. That further indicates that USDA "jumped the gun" on its August huge cuts in production, with a nearly 2 bu/acre cut in yield in that one surprising report. Now, USDA has to quickly reverse that ill-advised yield
estimate, and it very well might be possible that USDA will be hiking soybean yield estimates in all future reports.
As for corn, USDA just copies the Pro Farmer yield estimates, and remember, these are still reports before any real harvesting has taken place, and harvest yields can vary by as much as 6 bu/acre from any estimate (or more in outrageous years).
The yield estimates are still well off the yield estimates you get using crop conditions ratings from USDA, as currently the Pro Ag yield model is going at 157 bu/acre corn right now (up 1 bu/acre last week) and a little over 43 bu/acre for soybeans (vs. 41.8 USDA Sept. estimate). It very well might be possible that the production numbers are going to continue to rise, as based on the yield models there is only a 15% chance or less that actual yields will come in as small as USDA's current yield estimates.
Is it any surprise that prices are sagging now that some actual yield results are coming in better than expected? Although these early harvest yields are coming in better than expected, we still are dealing with limited harvest activity to date. But yield models suggest that those better than expected yields will continue. Why?
Could it be that wet conditions early in the year, followed by a dry July and August (a hot July, but cooler August) might still bring about nearly normal yields? And as the harvest comes in, could there be heavy selling of commodities with prices at the highest levels ever at a harvest for a US crop? With that kind of situation, it might be difficult for prices to continue to hold these lofty levels.
Also, note that while USDA cut US corn production and ending stocks, world stocks of corn and feedgrains rose in the Sept. report based on larger expected crops across the world. That was echoed in the wheat and soybean numbers, where larger world supplies were indicated in this report. Its clear that the world won't be running out of grain in the near term.
And to add to the negativity of the fundamentals, the technicals turned quickly negative in the days following the report, with soybeans forming a daily downside reversal Monday, followed by a daily downside reversal in corn on Tuesday. These negative technical formations might lead to significant price declines into harvest. Could corn drop below $6, and soybeans below $10, in this harvest lows?
One always has to keep your eyes opened for potential changes in the atmosphere of traders, and this report might have done that by changing perceptions in the market from one of limited supply to one of "maybe we have enough supply?".
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