Uncle Sam’s numbers are helping the grain markets

All summer it has seemed that the U.S. Department of Agriculture’s estimates of the 2018 crop were hurting the market. This was a bias that I held, along with good company from analysts all over the country.

We have felt that the methodology of the USDA and National Agricultural Statistics Service was contributing to over-stating the crop size and was resulting in prices too low for actual conditions. Sept. 30, we got the first news from the government this summer that helped prices.

That news came not from the Crop Production Report, which is not out for another couple of weeks, but from the Sept. 1 Grain Stocks Report. Most of the conclusions of the report were bullish for prices, and prices did rally to the highest level in months.

Soybean futures

November soybean futures rallied Sept. 30 to a high of 9.06-3/4 and closed at 9.04-1/4, which was up 23 cents for the day. The price represented the highest level since July 29.

This came on the report that our grain stocks for the start of the month were at 0.913 billion bushels, way below the average trade estimate of 0.982 billion, and well below the lowest estimate of 0.940 billion.

In other words, we have used up our soybean supply more than expected in the last crop year, which ended Aug. 30. It should be noted that the stocks were still twice the level of the previous year, which was 0.438 billion bushels.

The rally was helped by the announcement of a one-million metric ton sale to China, to take place in the next three months of November through January. It was also helped by the USDA’s estimate of the 2018 soybean production, included in the stocks report (corn production was not included).

Harvest

The USDA now says we harvested 4.428 billion bushels, lower than the average trade guess of 4.528, and even lower than the lowest trade estimate of 4.412 billion. In other words, part of the ending stocks drop was the fact that we did not produce as much as we thought we had.

Corn futures had similar gains, although without help from the Chinese trade news. The ending stocks for the 2017-2018 crop year came in at 2.114 billion bushels, significantly lower than the average trade guess of 2.428 billion, and even lower than the lowest guess, which was 2.298 billion. It even got us below the level of the previous year, which was 2.140 billion.

This is significant because we are starting the year with a supply slightly lower than that of last year, but with a crop that is in trouble, even if Uncle Sam has not admitted it yet.

On the report news, December corn futures rallied Sept. 30 to a high of 3.88-1/4, and closed at 3.87, up 16-1/2 cents for the day. You have to go back to Aug. 18 for another price of 3.88, and that came the day after a 25-cent break on a surprising USDA Crop Production Report.

Yield expectations

Crop progress is still much of the talk in the Midwest, as farmers rate their chances of good yields after a record-late start. In many areas there are small plantings of early corn and beans that are being harvested. Current chatter is that, except for Western Iowa, most early yields are significantly lower than last year’s yields.

In addition, the expectation is for the June-planted corn and beans to be greatly reduced. As a result, we still feel that the USDA expectations for crop size are over-stated. The big expectation is still that yields are less than forecast, and that the actual harvested corn acres will be significantly below USDA estimates.

I continue to remind you that it is usually a mistake to think that USDA is wrong. Traders hang on their numbers, and the large spec funds are still short corn and bean positions, although they covered some shorts this week (that is, they bought back futures contracts). Nevertheless, I remain expectant of further surprises in USDA numbers.