MINNEAPOLIS — The November crop production and world agricultural supply and demand estimate reports are typically quiet and bridges the October yield projections and the final tally in January.
However, this month’s balance sheet and production estimates sent bearish ripples through the market with larger-than-anticipated corn and soybean yield projections.
Brian Basting of Advance Trading gave his take on the numbers in a teleconference hosted by Minneapolis Grain Exchange.
USDA raised corn yields from 173.4 to 175.3 bushels per acre, a new record, while the trade expected a decrease to 173.2. What were the factors in the unexpected increase?
Probably the headliner for corn in the Northern Plains, especially in North Dakota, was the big jump in the corn yield estimate compared to what it was in October. The North Dakota corn yield estimate was increased by 17 bushels from last month up to a record 154 bushels per acre. Minnesota was increased by four bushels, South Dakota by three bushels, Nebraska by three and Iowa up by one bushel.
Nationwide, corn production a record 15.226 billion bushels, and 15.057 billion bushels was projected last month. So that’s roughly 170 million bushels higher than what it was last month, so a substantial increase.
With this larger corn production estimate did the balance sheet get any help on the demand side?
USDA did tweak usage a little. Corn for ethanol was increased 25 million bushels, but that was not enough to offset the increase in crop size. So we have a corn carryout projection for 2016-2017 of 2.403 billion bushels. Last month was 2.32 billion bushels carryout. This month’s carryout was above the average trade guess of 2.3 billion.
There was more a negative feel to this corn report, highlighted by that big jump in yield in the Northern Plains, and that’s being reflected in the corn market.
The USDA was aggressive in its soybean yield changes, increasing the nation’s yield average to 52.5 bushels per acre, 1.1 bushels higher than the October projection and 4.5 bushels higher than the record set last year. What areas of the U.S. moved the yield average needle upward more than anticipated?
This jump was highlighted by increases relative to last month, including a two bushel increase in South Dakota and North Dakota, three bushels in Minnesota, a bushel each in Nebraska and Iowa. Probably the highlight would be a five bushel increase in Michigan.
The total crop production was estimated at 4.361 billion bushels, and the average trade guess was 4.314 billion bushels, so it was a little negative there.
Was there any uptick in demand with the larger production estimate?
There wasn’t much change in the usage categories. USDA did increase soybean exports by 25 million bushels, but lowered crush by 20 million bushels. As a result and with the larger crop the carryout jump from 395 million bushels for 2016-2017 in October to 480 million bushels this month.
That 480 million bushel estimate was well above the average trade guess of 420 million, and actually it was above the high end of the range of 467 million. That’s weighed on the soybean market quite a bit.
With the U.S. harvest wrapping up, where does the trade turn its attention to until the final crop production summary is released in January?
We’ll shift focus to South America and what the growing conditions look like down there. It’s very early down there yet, but the soybean crop is being planted much faster in Brazil than a year ago, and that bodes well for the double-crop corn, which is planted after soybeans in northern Brazil.
That double-crop corn was planted later than normal last year because the soybean crop was planted later than normal in the fall. As a result, that corn pollinated later in the heat of the summer and actually experienced a drought, and that was one of the reasons why our exports are so strong now.
The market’s attention now will also shift to the export prospects near term, which look very good for corn and soybeans and just average for wheat, and then we’ll focus on South American weather.
From a marketing standpoint, what are some of the most important things farmers need to consider at this point?
I would say at this point a producer really wants to focus on defending the balance sheet. I think these markets right now feel heavy from the standpoint of bumper supply, not only in the U.S., but bumper world supply and that goes for wheat, corn and soybeans.
We’ve had a respectable post-harvest rally in corn and soybeans, so there’s an opportunity there not only to do some pricing for 2016 crops but also perhaps to consider the 2017 crops.
By saying defend the balance sheet, I mean get some floors underneath these markets one way or another. You can do that by either making a cash sale or buying a put option. To establish a floor for these record crops that we have with these corn and soybeans and yet leave an upside open in case an issue arose on South America.
Defending the balance sheet is very important because we could have an even more burdensome supply if South America doesn’t have any weather issues this winter.