Market prices again hang on USDA report

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A combine harvesting corn.

Harvest pressure and growing sentiment that the U.S. corn and soybean crops are better than thought all summer are stressing prices right now.

Even as the U.S. Department of Agriculture was set to release the current supply and demand report Oct. 12, traders and observers were struggling with putting numbers on crop size.

All summer we have talked about how severe the drought was in the northwest Corn Belt. The worst was in the area of the Dakotas which, much like northeastern Ohio, did not used to be considered significant as a production area.

In the last few years, fed by early planting techniques and better genetics, almost a quarter of our crop is grown in the weather-extreme areas of the Dakotas and Minnesota. There is no doubt that the weather was extreme in that area.

However, it has been observed in other extreme seasons that modern varieties of corn and soybeans have amazing drought resistance, and the ability to use minute amounts of rainfall to fill the grain.

Consequently, the yields are terrible in some areas, but not as bad as feared as the combines run. Streaks of fair yields exist where spotty showers saved the crops.

The Eastern Corn Belt, meanwhile, is having a crop so good as to make up for problems in the west. Illinois, for example, was expected to come in with a record 214 bpa yield in the last report.

Ahead of the report, some think we will not quite reach that, due to late disease problems, but it still will be high.

It must be remembered that our national average yield is an average. So, regardless of problems in the northwest Corn Belt, the trade now expects an average yield of an amazing 175 bushels.

Looking ahead

They expect the 2022 crop ending stocks to come in at 1.432 billion bushels, bigger than previously thought. Some of this comes from a surprising 2021 crop ending stocks increase, which may have been distorted by early harvest to capture huge late-year basis. That estimate gets pushed ahead, but might just overestimate the 2022 ending stocks.

The large unknowns in the supply and demand report are how much we grind for ethanol and how much we export. Some experts expect both of these to eventually be significantly higher than this report will show. That will lower the ending stocks and increase our spring and summer prices as that reality stokes the market.

The poor crop in the Dakotas has an interesting effect on harvest basis. Basis in general is very narrow this year, with a small carryout and good prices. Normal for the country is from 35 to 50 cents under December futures. Normally it is much wider in the west than in the east.

This year, it is the same on either end of the Corn Belt, and the average right now is just 17 under the December futures. The December futures lost 11 cents on the week, as elevators took in grain and sold futures. Some farmers sold more than usual for this time of year, capturing the narrow basis instead of storing for basis improvement.

December corn futures were down almost a nickel, at $5.281⁄4 the morning of Oct. 12. The recent low was way down at $4.971⁄2 a month ago. The recent high was at $5.481⁄2 the last day of September. We are trading just above the middle of that recent range.

November soybean futures have been in a downtrend since May. It is encouraging that we only lost 31⁄2 cents last week and held support of $12.30. We would have expected the worst harvest pressure to come in soybeans, which are mostly off in the country.

Wheat

We are off five and three-quarters cents this morning, at $12.221⁄2, so we have broken that support with a low of $12.19. Chicago wheat prices lost 21 cents last week as interest in wheat is centered in the hard spring wheat crop.

As we have noted for some time, both acres and yields of the spring wheat were historically low. Our soft red winter wheat is the most common class in the world, while the spring wheat cannot be substituted.

That has meant that the price has rocketed to near $9.50 a bushel, and as it is rationed, we can expect even higher prices.

It is notable in the soy complex that we are now crushing beans for oil. Crush margins are high, but the meal is relatively cheap and just a byproduct currently of the crush for oil.

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