KANSAS CITY, Mo. — The unexpected large reductions in projected corn and soybean harvested acres in the U.S. Department of Agriculture’s reports Sept. 12 was called a “game changer.”
“Wow, did USDA give us something to talk about today,” Arlan Suderman, StoneX Financial chief commodities economist, said in a webinar following the release of USDA’s crop production and supply and demand estimates reports.
“There were a few surprises in there, but most of them were kind of in line with what I was starting to get nervous about that we could see as we got into late last week. I thought this was a market that seems to be prepared now for a shrink in the corn crop, but it’s not very prepared for shrinking the soybean crop.”
What were the major surprises compared to expectations in the days leading up to USDA’s reports?
Suderman: I expected soybean acreage to go up and not down by 600,000. And then losing 1 million corn acres was also another surprise. I expect them to stay pretty similar, maybe go one way or the other by 100,000, 150,000 acres, but no significant change instead of losing 1 million acres.
Even in the Farm Service Agency data that we saw I don’t know that we could have predicted these kinds of acreage changes. Nonetheless, it is what it is and is what’s going to get traded.
We don’t get in the business of fighting USDA because that’s what the trade is going to assume to be fact and perception is reality in the markets. I’ve made too many mistakes over the last four decades trying to assume otherwise.
USDA lowered the projected U.S. corn yield by 2.9 bushels per acre from last month to 172.5 bushels per acres. Was that in line with expectations?
Suderman: The corn yield came in identical to what the average trade guess was. The surprise came with USDA cutting harvested acres by 1 million. That was significant.
Our yields (173.2 bushels per acre) came from our customer survey, and we will survey again on Oct. 1 and I anticipate we’ll see a reduction in both of those yields in that survey.
The drop in harvested corn acres reduced the crop size to 13.944 billion bushels. It wasn’t below all the trade guesses, but it was certainly at the low end of the trade guesses.
“The trade is going to assume with both corn and soybeans that small crops get smaller.”— Arlan Suderman, chief commodities economist, StoneX Financial
We saw Illinois, Colorado and Kentucky corn yields go up, but beyond that most of the Corn Belt states saw declines. Those declines were bigger in the western Midwest.
That was expected, but the surprise to me was I expected the eastern Midwest to hang on and show more stability and maybe even show more increases like Illinois and Kentucky did.
The inability to do that made it difficult if not impossible to offset the losses in the west. The last 30 days of the grain-fill period have been very dry west of the Mississippi River relative to normal.
USDA forecast the nation soybean yields to average 50.5 bushels per acre, down 1.4 bushels from the previous forecast.
Suderman: The soybean yield came in below any lowest trade guess and harvested acres dropped 600,000 acres and I think they’re going to end up dropping harvested acres some more because I think abandonment is going to be higher for soybeans this year.
So, look for that in future reports if my hunches are right. The trade is going to assume with both corn and soybeans that small crops get smaller.
Soybean yields went up in Iowa, Wisconsin, Tennessee, but virtually every other major production state in the Midwest has either steady or declining yields from the previous month. The greatest problems are in the central Plains where the heat was intense.
What impact will these lower production numbers have on supplies and ending stocks?
Suderman: Corn ending stocks of 1.219 billion bushels is pretty close to what the trade expected except that trade expected to do that with stronger demand.
USDA slashed demand by 250 million bushels. They’re assuming high prices are going to ration demand, but they only went up a dime for the marketing year average cash price.
Soybean ending stocks were 200 million bushels. USDA cut crush by 20 million bushels assuming strong cash prices are going to ration some crush.
Exports were cut by 70 million bushels. I think they have another 85 million bushels to go in cutting exports for next year if Brazil has normal weather.
The bottom line is if either the corn or soybean crops get smaller, the market has to do even more work to ration demand.
USDA left its marketing year average cash price for soybeans unchanged in this report, so I’m not sure how prices are going to ration demand without higher prices.
Do you see further USDA revisions to the corn and soybean productions numbers going forward into January and later?
Suderman: Yes, I do. I think we’ll see both corn and soybean yields come down. I think that we’ll see soybean harvested acreage trend lower, as well.
I’m less confident in reducing acreage on corn. That could happen. That would be the bias if it does change it will be down, but there’s less data to support an additional harvested acres decline on corn.
My yield model for corn as of last week was at 171.2 bushels per acre. So, that’s another 1.3 bushels below USDA.
The yield model does pretty well in most years, but it doesn’t pick up changes in seed size away from normal in the years that are either very favorable or unfavorable for seed size.
This is a year when it’s unfavorable for seed size and since I’m at 171.2 with that yield model that makes me worry that the actual corn yield is below 170. That creates a lot more problems. This is really going to make things tight until we get South American supplies available.
South American corn is starting to hit the market now, but for soybeans we have to wait until the January, February time period before they’re being harvested and moved to the ports. It will leave several months of very nervous end-users of soybeans until that happens.