Crop reports damage weak grain market

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Friday, USDA released the World Agricultural Supply and Demand Estimates report (WASDE) and the U.S. Crop Production estimate for August. The market reacted with a groan.

In the reaction, December corn futures closed 11 cents lower, November soybeans closed down 421⁄4 cents, and Chicago December wheat futures closed down 17 cents. Monday’s market followed through with losses, but a strong bounce on this Turnaround Tuesday has corn up almost 2 cents and beans up 8.

The report reaction took away the bounce in prices we had seen in the last few days and cast a negative tone for the balance of the summer.

The corn crop is now expected to give us a record yield, at 178.4 bushels/acre, up from 174 bpa forecast in the July report. Because of reduced acres, this will not give us a record crop, but it will be second to the crop of 2015-2016. The result is an ending stocks estimate of 1.68 billion bushels, up from the July estimate of 1.55 billion.

The negativity continued with the soybeans. We now look for a crop of 4.59 billion bushels, up 4 percent from last year, and a record. The yield of 51.6 bpa comes as July’s estimate was only 48.5 bpa. The ending stocks would increase to 785 million for next year’s crop, 250 million more than the biggest pre-report trade guess.

This is the shock that drove the prices down Friday.

Our wheat crop is now estimated to come in at 1.88 billion bushels. That is a little below the July estimate, but still 8 percent better than last year.

The spring wheat is still being harvested, so the U.S. total crop of all classes is still an estimate. The spring wheat harvest is at 35 percent, well ahead of the average of 27 percent. Dry weather In the Northern Plains has helped harvest.

Wheat prices also dropped the last two sessions, partly in sympathy to the bean drop, and partly because of world Supply and Demand Report news. The world crop, although with problems, did come in ahead of estimates.

This has been a weird year for weather, yield projections, and price action. Markets rallied sharply in May, as we struggled to get the crops planted. We caught up the end of May, then had a good June. The better weather took the negatives out of production, and prices declined.

The decline was acerbated by politically driven export news that tariffs would hurt our exports.

Now, we have further production news that the crops are getting bigger. The prospects of better prices that we had seen from the early August bounces in price now seem gone.

Now the outlook is for yet again a huge crop, our third in a row. At the same time we have China buying beans from South America, and the news that the Brazilians will continue to expand their acres. In the last two years they have increased 4.9 million acres, partly by reducing sugarcane production.

Disciplined farmers sold a chunk of new crop corn and beans in May. Nobody I know sold very much. All I talk to lament that they did not sell more, but it was early and the prices were still not that good.

Now we look forward to what is projected to be an early harvest for many, with the USDA Crop Condition report showing early maturity. The amount dented now is double the five-year average, at 26 percent versus a normal 13. Ohio is at 16 percent, versus an average of 7 percent dented.

I continue to say that, if we can just get the yields, high yields and low prices give more income than low yields and high prices. It’s just, higher prices are better.

At this point, higher prices seem like a corn-cob pipe dream.

 

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