At first glance, pre-report estimates for USDA’s September Crop Production and Supply and Demand reports don’t show anything overly shocking. Garnering the most attention will be yield and production estimates for corn and soybeans. And there we see a slight decrease in corn offset by small increases for soybeans. In the end, if realized, both will still be record large. Picture it as a game of blackjack with corn and soybean producers sitting at a count of 13 following the August reports. They both hit, with corn growers likely getting a Jack and soybean farmers getting a King. Doesn’t matter what the face card is, they still lose.
USDA will release its latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports at 11 a.m. Central Daylight Time Monday.
In August, USDA pegged the U.S. corn crop at 15.153 billion bushels with a national average yield of 175.1 bushels per acre. Both were record large, yet the market closed higher that report day (before then moving to new long-term lows). The thought was the August round of cyanide was likely the largest the market would see through next January’s “final” estimates. Pre-report guesses for September seem to confirm that thought process, though the high end of both showed at least some outliers calling for slightly higher numbers this time around.
Soybeans also saw record numbers in USDA’s August report with production pegged at 4.06 bb as compared to the previous year’s old record of 3.929 bb. U.S. national average yield was estimated at a record 48.9 bpa versus the previous year’s 48 bpa. This time around, pre-report guesses put average yield at 49.4 bpa, bumping production above the 4.0 bb mark to 4.1 bb.
Here’s the thing: Forward curves of the futures markets for both corn and soybeans would suggest these numbers are all too high. Corn’s 2016-2017 forward curve covers approximately 59% of full commercial carry, a neutral-to-bearish reading of long-term supply and demand. Even more dramatic is the roughly 17% coverage of long-term carry in the soybean forward curve, a still strongly bullish reading despite the recent move from an inverted forward curve to small carry. Recall that 33% or less is considered bullish, 67% or more bearish, and the third in between varying levels of neutral.
Why the difference in opinion? If we stick with the idea that yield, and the resulting total production, is key, then we could use USDA’s own weekly crop condition numbers as a partial explanation. The most recent set of data, through Sunday, Sept. 4, resulted in a DTN Crop Condition Index for corn of 178 points. While still on the high side of what is seen historically, it was below the 180 points seen the same week in 2014. So if that crop averaged 171 bpa, could these crop condition figures be pointing to a final national average yield closer to 169 bpa?
Similarly, the DTN National Crop Condition Index for soybeans came in at a lofty 175 points, but was also below the 178 seen for the same week last year. Mathematically, again if there is any validity to the weekly reports, final soybean national average yield could be calculated closer to 46.5 bpa.
Lastly, we should take a look at what the real key to any supply and demand report is: ending stocks. Old-crop ending stocks for both corn and soybeans are expected to see small increases from August, though more will be known with the release of the Quarterly Stocks report on Sept. 30. It is highly likely soybean traders don’t pay much attention to the September estimate given USDA’s propensity for dramatically underestimating total demand. As for corn, it’s quite possible that the old-crop number could be much higher than this pre-report average estimate of 1.711 bb when the quarterly stocks number is unsealed. Therefore, again it is unlikely traders get overly excited.
The real interest could lie in the new-crop ending stocks estimates. The pre-report average guess for corn came in at 2.322 bb, down 87 million bushels from USDA’s August figure. However, recall that production is expected to be 179 bb less and old-crop ending stocks only 5 mb larger. This would imply that total 2016-2017 demand could be trimmed by about 87 mb. New-crop soybean ending stocks are expected to come in around 333 mb, near unchanged from USDA’s August 330 mb estimate. Here production is expected to increase by 40 mb and old-crop ending stocks decrease by 27 mb, leaving 2016-2017 to increase by a slight 10 mb.
In the end, after the cards are reshuffled and new hands dealt, corn and soybeans will probably be facing a situation not much changed from the one seen the last time around.
Editor’s note: Analysts’ estimates for 2016 U.S. crop production and U.S. and world ending stocks were compiled by The Wall Street Journal.
|U.S. CROP PRODUCTION (Million Bushels) 2016-17|
|U.S. AVERAGE YIELD (Bushels Per Acre) 2016-17|
|U.S. ENDING STOCKS (Million Bushels) 2016-17|
|U.S. ENDING STOCKS (Million Bushels) 2015-16|
|WORLD ENDING STOCKS (Million Bushels) 2016-17|
|WORLD ENDING STOCKS (Million Bushels) 2015-16|
|WORLD PRODUCTION (Million Metric Tons)|