Now is the time when we anticipated harvest news of small crops to stoke a market rally. There is no shortage of news. There is a shortage of bullish enthusiasm.
The Nov. 8 U.S. Department of Agriculture reports were hoped to contain results from actual field surveys that would challenge traders’ ideas about crop size and change prices. In fact, USDA numbers changed little, and the market remains stagnant. Analysts have been shy about predicting large changes to crop yields.
There has been talk that there is a published number that represents the guess of the USDA number, then a private estimate that is more of a true analyst estimate of crop size.
How did it come out? USDA did reduce the corn yield a whopping 1.4 bushels per acre to 167 bpa. That was a half-bushel below the “official” average trade guess, but still seven or eight bushels above what analysts talk about privately.
The USDA did not change the soybean yield at all, leaving it at 46.9 bpa. Private talk has that at 45 bpa, but the average published trade guess was at 46.6 bpa. Also suspect is the USDA’s harvested acres estimate. We had 81.7 million acres last year, and are expected to harvest 81.8 million this year.
Actually, we will not know how prevented planting and abandoned acres affect the final acres until the January inventory report. The USDA numbers landed on the market with no real result. We traded down into the report, maybe anticipating a bounce out of it. The bounce did not come, and now we are looking for new news.
The harvest is slow, but we don’t have a real number on the progress because Veterans’ Day delayed our progress reports a day, until Nov. 12. It is believed that the corn harvest is 65-68% done, against an 85% average. The soybean harvest may be close to 90% done, with many areas finished.
This much progress should have provided analysts data to estimate the crop size. The estimates I see still suggest that the crop is over-estimated. How could we have this massive weather problem that slows planting from April until June and floods out large areas, but still gives us a 167 bpa yield after a 176.4 bpa yield last year?
Pappy always said nothing is ever as bad as a farmer says it is, but this year was bad. Still, even with my prejudices, I caution that the market assumes that the USDA is right until they can be proven wrong. Spec funds are adding to short positions, putting money where the estimates are.
Based on the history of their methodology, the USDA will have a couple more small reductions in crop estimates. A big one would be only a result of surprise about the real crop size.
There is talk in the business of what could change the corn balance sheet. Ethanol production is turning profitable again. More corn could go into gasoline, especially since so much corn is lower in quality than last year. This could mean that it takes more corn to make the same ethanol.
South American soybean planting has been delayed by dry weather (they wait for rain to plant the crop). That, in turn, could limit the size of the safrina corn crop, planted after soybeans.
Also, the high beef prices could mean greater feeding of corn, especially of lower-quality corn which has less nutrition per bushel. Then, there is just the fact that the lower test weight of late-planted corn could mean that farmers and traders alike are overestimating what is coming off the fields.
The USDA is now saying that we will end up with a carry out of over 1.9 billion bushels of corn when the marketing year ends Aug. 31. The factors above could greatly cut that carry out. Still, the greatest error in the USDA numbers could just be in the production.
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