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Soybeans yields continue to improve
Crop conditions continue to suggest improvements in soybean yield potential, this week with a 2% improvement in the G/E ratings for soybeans which caused the Pro Ag yield model to jump another 0.5 bu/acre to 37.2 bu/acre. That represents the second week in a row that soybean yield potential has expanded by 0.5 bu/acre, a large increase. That means that soybean conditions are improving as we enter harvest, meaning better than expected yields are resulting out in the fields. That increases the likelihood that soybean prices have topped for now, as the larger yields will mean hikes in future USDA crop reports, and more acres available in South America (SAM) to expand corn acreage there instead of soybeans.
Typically, following 2 weeks of rising yield potential following yield declines, the prices will reverse lower and may never look back pre-harvest. Pro Ag could foresee an improvement in yield potential all the way to 38 bu/acre or higher, which would result in a bearish reaction from traders if these numbers turn out to be the correct final soybean yield. Cool weather in early August may be making the difference in soybean yields, as we had 2 weeks where weather was actually cooler than normal at a critical time of the soybean plant's development. Contrast that with corn, which suffered through above average temps through the entire month of July.
The USDA report was due out Wednesday morning, and expectations are for more cuts in yield and production in corn and soybeans. The report was bearish corn as the production estimate was only slightly smaller for corn than last month and larger than trade estimates (10.727 billion and 122.8 bu/acre vs. estimates of 10.403 billion and 120.6 bu/acre). The soybean estimate was about as expected at 2.634 billion (35.3 bu/acre) vs. expectations of 2.638 billion and 35.5 bu/acre). However, soybean yields are coming in larger than expected, and the Pro Ag yield model is up 1 bu/acre already in September so the production estimate for soybeans will go up from here. Overall, the report is bearish corn and soybeans, with ending stocks of corn at 733 vs. expectations of 618 and soybeans ES at 115 mb vs. 106 expected. Notably, USDA raised 2011/12 endings stocks of corn to 1.181 billion from 1.128 while it was expected they would lower it to 1.014 billion, so that also was bearish as we used less grain last year than expected (as Pro Ag has noted, exports especially dropped in the last few months).
World ending stocks were about as expected, with wheat slightly less than expected (a 4 mmt cut in FSU-12 wheat production to only 79 mmt) at 176.71 mmt vs. 177.17 in August. Corn, however, was higher than expected at 123.95 vs. 123.33 in August, and soybeans 53.1 mmt vs. 53.38 in August. Overall, the world will not run out of grain in 2012 in spite of a poor US corn/soybeans and FSU wheat crop.
On a more personal note, I traveled last week to Russia for the Russian Grade Union's "Black Sea Grain and Oilseed" Grain Meeting as one of the keynote speakers. Indeed, FSU grain production numbers will be dismal, with predictions of from 20-22% smaller Russian production in 2012 from 2011, with Kazahkstan production down about 50%, and Ukraine down slightly less than Russia. Overall, it was a disastrous crop in 2012 following a bumper crop in 2011. Exportable supplies of grain will be limited in 2012, but ironically their grain is still priced under US values for wheat right now in spite of a bumper harvest in the US and small harvest in the FSU.
Ironically, there is still little price focus there, as price discovery amounts to looking at US values, and pricing it as "just a bit lower". So that leaves the US the pricing mechanism for the world, with US producers and users the only ones who adjust production and consumption with price changes. Pro Ag finds it amusing somewhat that domestic consumption in the FSU doesn't vary with price at all. Instead, they consider it "like the body temperature, steady at all times". If they don't adjust to crop values in their livestock feeding or domestic use, then who will balance the S/D numbers in the world??? The answer is western countries, not the FSU!
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