Low Markets Have Long Tails

While the Pro Ag yield model for soybeans keeps expanding, the USDA is raising its yield projection much faster, and that was the same result again this week in the September USDA report. The soybean yields now being forecasted by the USDA will shatter the previous record yield of 48 bushels per acre by a lot, and corn yields are forecast to break the old record-high yield of 171 bushels per acre by a little now.  

Monday’s USDA September report showed a smaller corn crop at 174.4 bushels per acre (down 0.7 bushels per acre) and a much larger soybean crop at 50.6 bushels per acre, up 1.7 bushels per acre from last month. The soybean number was much larger than even the largest guess, but the USDA offset the 140-mb hike in production with another 105-mb hike in demand (60 mb from beginning stocks on last year’s exports, and 45 mb in this year’s including +35 mb exports and +10 mb crush). In the last two months, the USDA has hiked soybean yields nearly 4 bushels per acre (2.2 bushels in August and 1.7 bushels per acre in September), so now yields are 2.6 bushels per acre larger than the previous record large yield. Can the crop be that good? What adjustments will be made in the October, November, and January reports?

The corn yield drop was smaller than expected, so both numbers were considered bearish, and helped to push prices lower. Carryout of corn was 52 mb larger than expected at 2.384 bb, with soybeans 32 mb larger than expected at 365 mb. Wheat numbers were unchanged from last month, and will see more revisions in the September 30 small grain final report.  

World ending stocks were 0.1 mmt larger than expected in corn, 1.6 mmt larger than expected in soybeans at 72.9 mmt, and were down 2.3 mmt more than expected in the wheat to 249.1 mmt (which was slightly friendly wheat, and thus the higher close).  

Corn and soybean crop conditions came out yesterday after the close at 3 p.m., with both corn and soybean conditions unchanged from last week. Corn was rated 74% G/E, with the yield model up slightly to 177.5 bushels per acre, up 0.12 bushels per acre this week. Corn is now 87% dented vs. 82% normally at this time, with 33% mature vs. 32% normally, and 5% harvested vs. 7% normally at this time.  

The soybeans were unchanged at 73% rated G/E, with the yield model going up 0.10 bushels per acre to 48.82 bushels per acre – still well below USDA’s new high estimate. We’ll see when harvest expands if the yields are as large as USDA is projecting. Soybeans are 26% dropping leaves vs. 25% normally, so we are a bit ahead of schedule there, too, as we have been all year.  

Weather forecasts are shifting to a wet forecast for the HRW wheat belt. The rest of the Corn Belt will be relatively dry in the east, with above-normal temperatures. The above-normal temperatures continue in the eight- to 14-day forecast, leaving little chance for a frost threat with the relatively mature crops and warm forecast.  

We continue to target the $9 November soybeans area on the low side of prices, at which Pro Ag would target removing some hedges. With corn, we removed 25% of our hedges at $3.20; you could put those hedges back on at $3.40 December futures or better, and target removing the rest at $2.90 December futures. We rallied to the $9.80 November futures level, where specs can place orders to sell soybeans (we prefer with puts and calls) for a target of $9 since soybean yields are still expanding.

As we stated last week, it looks like we’ll get a record-large wheat, corn, and soybean crop in 2016. Prices pretty much reflect that reality already, as we are at or near some multiyear lows for corn and wheat, and seemingly on our way there for soybeans, too. How long we can stay down here at low price levels might be the next question of the day in the marketplace. Usually, bottoms last months while tops last minutes, so it might be a while before prices start to move higher.  

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