October 4, 2023
With the government shutdown delayed until mid-November, the trade's attention has turned to next week's October production and WASDE reports. These results should have a significant impact on the market's next move. Here are six factors to watch as the harvest moves forward.
Which way yields?
The odds are high we will see adjustments to the national yield on the supply side of the equation. The debate is about how much and in what direction.
As of Oct. 2, soybeans and the corn harvest were just shy of 25% complete. The common theme of these early results is that yields for soybeans and corn are coming in better than expected. Some producers have expressed concern that the later crop’s yield potential could trail off due to late-season heat and dryness. Time will tell.
The real question about the crop size is not that it is coming in better than anticipated, but is it better than last year? Current corn ratings have 53% of the crop rated G/E (good/excellent) vs. 52% a year ago. Last year's crop national trend yield was 173.3 bushels per acre. The soybean crop is currently rated 52% G/E compared to 55% last year. The soybean national yield last year ended up at 49.5 bpa.
For next week's report, early thoughts are that the national corn yield will fall between 170 – 176 bpa, vs. the Sept. USDA forecast of 173.8 bpa. Most yield estimates for U.S. soybeans are coming in between 49 – 50.5 bpa, vs. the September USDA forecast of 50.1 bpa.
Export demand continues to be a concern for market bulls. Year-to-date corn sales total 495 million bushels, down 3% from last year's pace. These sales represent 24% of the USDA export forecast of 2.050 billion bushels, well below the historical average of 34%. Year-to-date soybean sales total 652 million bushels, down 34% from a year ago vs. the USDA forecast of down 10%. Year-to-date sales represent 36% of the export forecast, below the historical average of 48%.
Low river levels are having a negative impact on moving sold crops. This past week, corn export inspections came in at 25 million bushels, which was below the 41 million bushels we need to average per week to reach the USDA export forecast. Year-to-date, corn inspections currently total 104 million bushels, up 11% from a year ago vs. the USDA forecast of up 23%. This past week, soybeans export inspections were 24 million bushels below the 36 million per week we need to average to hit the USDA export forecast.
Strong dollar impacts
A strong U.S. dollar trading at ten-month highs will continue to be an anchor on exports. This, combined with competition from other world exports, could limit the ability to reach USDA's export target.
Rumors are that Ukraine sold up to 15 boats of corn to China last week. At the same time, Ukrainian officials report that five vessels are heading to their seaports along their own "humanitarian corridor" that will load another 120k of Ukrainian grain to export.
Demand bright spots
Strong demand for corn for the ethanol grind and positive crush margins for soybeans are the bright spots on the demand front. We anticipate that demand for ethanol will stay strong as long as margins remain strong. Continued expansion of soybean crush capacity (due to growth in renewable diesel) will continue to support domestic demand for soybeans as well.
Traders will keep an eye on what the fund traders are doing. Last week, money managers were net sellers of nearly 24k corn contracts, extending their short position to 168,606 contracts. This is their largest short position in just over three years, but still way shy of their record short of 322,215 contracts.
The funds' soybean position has fallen to 30,058 contracts—a three-month low. The trading funds' net long position in the soybean complex (Soybeans, soy oil, soymeal) is 124k contracts, a three-month low.
Money managers' long exposure in the agricultural space has fallen to just over 35,000 contracts, their smallest position in late September since 2019.
The best-case scenario for the producer would be for the yield to trend lower and demand to snap back. A worst-case scenario would be for the crop size to rebound and demand to continue to disappoint.
If you have questions or would like specific recommendations for your operation, don't hesitate to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT.
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