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45741

USDA Kicks Can Down the Road

The long-awaited October USDA report was out Friday, October 9, and it appears that USDA kicked the can down the road as they only projected corn yields at 168 bushels (only 0.5 bushel per acre larger than last month), but larger than expected (166.4 bushels per acre) because traders anticipated a
cut. 

But the Pro Ag yield model is still 3.5 bushels per acre larger than USDA (it will be updated Tuesday afternoon with the crop progress report, delayed one day due to yesterday's government holiday).  Odds are USDA will eventually need to hike up the yield estimate of corn as much as 2 bushels per acre in the November report and another 1.5 bushels into the January report. So there likely will still be more bearish news in the corn market. (A question some are asking is, "Did USDA sandbag yields in the October report so October insurance prices wouldn't be so low, and thus cost RMA/insurance companies more in terms of corn/soybean claims???")

Soybean yields were hiked 0.1 bushel per acre to 47.2 bushels per acre, larger than the 46.9 bushels per acre expected but somewhat offset by a more positive demand portfolio and smaller harvested acreage (-1.1 million acres harvested vs. expectations of a cut of 600,000 acres).  Corn also got a cut in harvested acreage 400,000 acres (vs. -200,000 expected) so the corn acreage number was somewhat friendly.  Ending stocks of soybeans ended at 425 mb vs. expectations of 398 mb, so that was somewhat bearish. 

Ending stocks of corn came in at 1.561 billion bushels, down 31 mb from last month but up from expectations of 1.498 billion bushels.  Wheat ending stocks were 861 mb, down 14 b from last month but up 40 mb from the average trade guess. 

So about the only numbers that were bullish were the cut in harvested corn and soybean acreage, whereas the yield reports are good and probably going to continue to improve as we go into the November and January reports, especially in corn. 

World ending stocks of corn were 187.8 mmt vs. 189.7 mmt in September and vs. expectations of 189.2 (so that was also somewhat friendly).  World soybean stocks were estimated at 85.1 mmt, up 0.1 mmt from last month but a full 0.5 mmt above expectations. Wheat ending stocks were the most negative number, with 228.5 mmt carryout in bins, up 4.1 mmt from expectations, and up 1.9 mmt from last month. 

Weather forecasts the next two weeks are similar to yesterday, still calling for mostly above-normal temps (except the far eastern Corn Belt) and below-normal precipitation the next seven days. Thereafter, the eight- to 14-day forecast turns quite a bit wetter (and also cooler), so that could delay harvest in the eight- to 14-day. However, Pro Ag thinks we had the best week of harvest all year in the past week. (We will see in the progress report today.)  

Since all the negative news is not yet built into the market (Pro Ag corn yield models are still 3.5 bushels per acre above USDA numbers), it's likely we'll get negative November and January production numbers in corn yet.  Stay short for now, as with harvest hitting the midpoint
level for corn and soybeans, it's likely there will be more harvest selling pressure in the last half of harvest when bin space fills up.

We expect markets to continue to go sideways to lower into the November USDA report as it's likely the corn yield will need to go higher by 2 bushels an acre or more, which means another 180 mb of production and ending stocks. We think USDA will need to hike corn yields again in the January final report 1.5 bushels per acre as well, pushing the corn yield to a new record-large 171.5 bushels per acre by the time all is said and done (beating last year's record-large 171 bushels per acre yield). This will be negative as that means total another 3.5-bushels-per-acre yield projection or about 308 mb extra production. Prices will need to go lower to get rid of excess supplies as carryout will approach 2 billion bushels.

This material has been prepared by a sales or trading employee or agent of Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing's Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

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