September 7, 2021
USDA crop reports often trigger big market moves, but price changes after release of September production, supply and demand numbers tend to be smaller than other months from August through January. While government economists tweak yield and usage estimates this month, June acreage projections typically aren’t updated until October.
USDA last week announced it will break with that tradition in its Sept. 10 release, with a notice indicating it expected to have enough data to make adjustments earlier than normal. That puts another variable in play as traders try to assess not only production, but the impact of Hurricane Ida and the ongoing pandemic on demand for U.S. corn and soybeans.
So here’s what we know and don’t know headed into the next make-or-break moment for the remnants of the 2021 bull market.
Old crop ending stocks
While most of the drama Friday should come from 2021 crop projections, available supplies start with what’s left over from the previous marketing year. This month’s estimates won’t be the final word. That usually comes after quarterly grain stocks are reported at the end of the September, which can lead to changes in two key categories.
USDA normally doesn’t adjust its forecast for corn feed and residual use until the survey data comes out. Other demand categories like corn exported and used for ethanol are fairly well known. Feed usage can’t be pinpointed, so statisticians assume “disappearance” that’s unaccounted for walked off the farm.
Residual use also is a factor with soybeans. Large amounts of unexplained usage may mean the size of the 2020 was over-estimated, triggering an official change from USDA, which could also adjust final production numbers for corn too.
Otherwise, old crop corn carryover may increase around 77 million bushels from the 1.117 billion the government printed in August. Weekly ethanol production data and monthly corn usage totals suggest USDA could be 35 million too high on its forecast for the biofuel’s impact. Weekly export inspections indicate the year’s total may fall 42 million below the government’s projection of a record 2.775 billion. Assuming the feed and residual adjustment is unchanged, that would take ending stocks to 1.197 billion.
Old crop soybean ending stocks may be headed in the other direction. Crush looks on track to meet USDA’s current forecast, but inspections data out today suggests exports could be 14 million stronger, despite the disruption caused by Ida in the final week of the marketing year. That could cut carryout to 146 million bushels.
New crop production
USDA surprised the trade with its first estimates of corn and soybean yields in August. But the production forecasts used acreage data tallied in June. As I reported last week, farmer certifications to the Farm Service Agency and crop insurance policy data suggest acreage for both crops could be raised when all is said and done in January, perhaps by a million acres each. September’s update could start by adding more than 500,000 harvested acres of both corn and soybeans.
Various yield models also point to increases. Though corn ratings have dropped over the past month, projected yields adjusted for the current week still look higher, as do projections from weather and the Vegetation Health Index, pointing to a yield of 177.1 bushels per acre, up 2.5 bpa since August. Coupled with more acres, total production could rise 311 million bushels to 15.05 billion.
Soybean output also looks higher. Yield could go up 1.2 bpa, taking total production up 131 million bushels to 4.47 billion.
These forecasts are at the top end of trade estimates, suggesting potential for a bearish reaction if they are correct.
New crop demand
Export potential is clouded by the impact from Ida, which looks capable of disrupting shipments out of the Gulf ahead of harvest. Fertilizer prices jumped $25 or more a ton last week for some products as ability to ship up river remains unknown.
Downstream grain movement could affect harvest basis but may not mean much when all is said and done. Export inspections after Hurricane Katrina in 2005 were poor for a couple of weeks after the storm, but recovered as cargoes were moved to other ports. Total corn exports went on to post their best showing in a decade because what we sell abroad depends in part of how much the competition raises around the world. That holds true for soybeans, too, with Chinese buying the swing factor now for both crops.
Demand from the world’s largest country is uncertain at best as importing firms assess the government’s attempt to tamp down purchases, part of a so-called reform effort to control everything from commodity inflation to the video gaming habits of children. Upheaval in China seems to come in every two or three decades – the Communist Revolution of the late 1940s, the Cultural Revolution begun in 1966, Tiananmen Square in 1989 – so the “Peoples Republic” is due. Whether the latest push will be merely public relations or something more significant could be one of the big themes of the coming year.
Soybeans appear to be the big question mark at the moment. A year ago China had booked 497 million bushels of new crop beans, 56% of the total and in line with its historical average. But as of last week China had booked just 292 million bushels, 45% of the total. Data out over the holiday weekend put August Chinese soybean imports at 349 million bushels, the third consecutive decline from the previous year’s totals.
As a result, total exports could drop 200 million below record 2020 crop levels. While crush could be stronger, larger supplies could swell carryout to 225 million bushels.
New crop corn exports were at record levels ahead of the start to the marketing year Sept. 1. China accounted for 56% of the bookings, compared to 48% a year ago. Early new crop bookings have a statistically weak correlation to final sales, but if Chinese buyers, many of them state firms, follow-through and take delivery, total exports could be 80 million more than USDA forecast in August.
That would offset some of the extra supply. With demand from ethanol plants likely in line with USDA’s August prediction, the swing factor of demand would be feed usage. Higher prices should discourage corn feeding, perhaps more than the 100-million bushel decline seen by the government last month. Overall carryout could rise close to 450 million bushels from my 2020 forecast to 1.65 billion.
If my estimates are close, Friday’s report need not be a bloodbath. December corn is nearly 85 cents off its highs after the Aug. 12 report, while November soybeans backtracked more than a dollar. So, some of this bearishness is already baked in.
Still, as I indicated in my previous column Mixed signals point to murky future for this grain market, seasonal trends suggests prices could drift for much of the fall before more is known about supply and demand.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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