A few weeks ago I said the bottom would be put in this sick market when the trade realized that the crop production estimate for corn and beans was too high. I am marking my diary that I finally got something right. Mark your calendars that the low is in.
On the night of Oct. 27, USDA announced a highly unusual revision to its Crop Production Estimates, then released them Oct. 28. The anticipation of lower production had the overnight trade wildly higher. Corn was up 25 cents. Soybeans bounced 57 cents. Wheat gained 19 cents.
I was basing my idea of a smaller crop on talk that the yields were disappointing. In fact, USDA only dropped the yield from 154 bushels per acre to 153.9. Big whoop! That did drop the crop size from 12.2 billion bushels to 12.0.
The big change for USDA was in the carryout. They now project that we will only have 1.088 billion bushels of corn left over the end of August 2009. That is a cut of nearly 6 percent and getting us very close to the magic 1 billion carry which is considered “tight” in modern times.
The big change in soybeans, meanwhile, was in acres. So, I am still wrong while I am right. The crop is smaller, but not because of the yields. USDA now says that we will harvest 74.4 million acres of soybeans, not the 75.9 they told us on Oct. 10. USDA has tuned up exports and now projects a cut to 205 million bushels in the carryout, which is higher than one might think because of projected slower exports. Raise the price, export fewer.
Given the reputation USDA has with the farmers, this report will be met with skepticism. The traders will question the timing. The farmers will be telling me that the government is just trying to bounce prices at election time. I don’t believe any of that and think USDA is just making an embarrassing admission that they got it wrong in the October numbers and don’t want to wait a month to change it. That might look worse.
Now the question is: Does this development spark a real rally or is this a one-day wonder? Analysts are already saying that the overnight change is too much for the USDA projection change. That may or may not be right. If the market is depressed from financial news, not grain fundamentals, then it deserves a bounce that is greater than what this news represents.
As usual, we don’t really know until the market reacts.
As for the actual prices, December wheat futures made a contract low at $4.96 1/2 Oct. 24. The recent high was Aug. 21st at $9.57. December corn futures made a $3.64 low Oct. 27, off $2.10 in a month. November soybeans had a recent high a month ago at $12.12, then declined to $8.25 by Oct. 16.
Hold onto your seed corn hats, but don’t bet the farm on this one.