For months, we have anticipated the USDA January reports. These would give us final numbers for crop size and the best look at the USDA balance sheet for grains. The reports were released Jan. 10, and the results were, to say the least, unsatisfactory.
For the entire growing season, Midwest farmers have been faced with weather circumstances that caused the corn and soybeans to be planted very late, harvested very late, and in some cases, not harvested at all.
The talk all spring was of prevented planting acres, corn that would never get planted. The talk in the fall was of low test weights, lower yields, and corn left in the fields in the upper Midwest. I drove by a field of standing corn in Trumbull County, Ohio, Jan. 13.
No big revisions
Yet, we never saw any big revisions in yield by USDA. They made small reductions a couple of times, but left the numbers the same from the November report on. The feeling was they would finally have to shock the market with the real numbers in the January report. It didn’t happen.
The USDA reported a corn yield of 176.4 bpa last year. This year, they actually raised the December number from 167 bpa to 168. So, USDA would have you believe that the incredible conditions across most of the U.S. resulted in a reduction of yield of just 7.4 bpa. Not noticed as much at the start was the reduction in harvested acres to 81.5 million acres, from 81.8.
The market went a little nuts in response, and pushed corn prices lower. Corn futures had a range of over a dime as March futures dropped to 3.761⁄2, then rebounded to 3.863⁄4. We closed a half-cent off the high, up two and a half cents for the day.
There was similar reaction in the soybean markets. The USDA dropped harvested acres by 600,000, to 75 million. But, they increased the yield from 46.9 bpa to 47.4. The result was an actual small increase in production, from 3.550 billion bushels to 3.558. March futures broke to 9.351⁄2, then rebounded to 9.47. The close was at 9.46, up two and a half for the day.
In the case of both commodities, the market traded lower the last days into the report. March corn futures had a high of 3.92 Jan. 2 and 3. March soybeans traded 9.61 Jan. 2. These highs came after a weak holiday season, and then traders priced grain lower in fear of the reports to come.
What it means
Conclusions are easy to come by, and may even be right. First, with the market lower into the report, it was easy to rally out of the report. Second, traders and analysts frankly are not confident of the actual report numbers. There is too much information floating around that indicates lower yields and lower harvested acres, especially of corn.
North Dakota farmers are running corn right now, and have been surprised at how much moisture the crop has lost. It is still immature, with test weights in the 40s. Recently it was reported that 8% of the crop was unharvested, mostly in the northern states. And, third, we have the realization that the “final” inventory reports are not final. The USDA will re-survey acres harvested.
Depending upon harvest progress, we may see new numbers in the March report. The USDA will revise yields as they get more information about the late harvested acres, and as reality sets in when crops go the town.
Other factors go into the dubious quality of the January reports. There is no China demand figured in, even though the Phase One China deal is to be signed Jan. 15. The market remains unconvinced of the impact this will bring, but will be glad to react after it is signed.
Also, there is the idea that usage is underestimated because the lower quality crop will be used faster in feed rations and will reduce the yield of ethanol so that more will be required for the same gallons. And, observers think that the Chinese will use a large quantity of ethanol as part of their ag agreements.
I will not even go into the weeds about some of the other numbers USDA juggled in this report. Some analysts are actually upset at some of the actions of those who prepared the report, and think we might spend a year working the numbers back to reality.
So, the report came and went. The market shrugged it off, and has rebounded. Better marketing prices may be ahead.
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