October 2, 2023
Markets had been hoping for a rally from Friday’s reports to set the harvest lows for corn and soybean prices. Over the past few years, we have seen harvest low prices set for corn and soybeans following the September 30 USDA reports. But that didn’t appear to be the case Friday, as prices continued lower.
Bears overpower bullish corn hopes
Even though corn stocks came in slightly lower than the market was expecting, which suggests higher than anticipated usage (a bullish sign), corn prices continued to trade at their pre-report losses of $0.03-$0.07/bushel following the report’s release.
Because of a small corn crop harvested last year (to which USDA only made minor revisions), June 1-Sept. 1 corn usage was always going to be on the smaller side. And it was indeed the smallest Q4 corn usage volume since the same period in 2014/15.
But following a lackluster corn export season this summer, flatlined ethanol growth, and a shrinking cattle herd, Friday’s corn numbers were actually higher than most of the pre-report analyst estimates. The better-than-expected usage rates helped stave off further losses in the corn complex, with some of the bearish sentiments likely exacerbated by losses in the soy and wheat complexes.
Is the harvest low priced in for corn following USDA’s reports? That one is a little trickier to predict this year. UDSA did corn markets a solid favor by finding more Q4 corn usage, but expectations remain high that a large crop is still going to be harvested this fall.
Corn markets will need to see more international purchases, domestic cattle herd expansion, and/or more corn oil volumes being used for renewable diesel production before we can say with certainty that the harvest low has been set this fall.
Soybeans suffer summer usage miss
Even as soybean ending stocks shrunk to their tightest level in two years (a very bullish sign), reduced usage rates were the more impactful factor on price volatility following the report’s release. Because only 528 million bushels of soybeans were consumed between June 1 and Sept. 1, 2023, the soybean market endured steep losses today as supply constraints eased.
It marked the smallest Q4 usage volume for soybeans since 2020/21, when supplies were pared down after China’s pandemic buying spree. But fundamentally, the small usage rate over the summer should not be a surprise – last year’s crop size was still the fifth largest on record but fell short of desired consumption paces.
The slight crop shortfall last year means that countryside supplies of soybeans this summer were scarce and end users (exporters and crush facilities) were not as eager to expand production in the face of high raw materials costs. The soybean market could see bullish forces return to the market following a smaller crop expected to be harvested this fall and as more soy crush plant expansion projects come online.
But Friday’s reports tell us that the soybean market is still trying to set a price floor and that the harvest low may not be in just yet.
Wheat production shocks with better-than-expected yields
Wheat prices were the dark horse of Friday’s report series. It was nothing short of a turbulent growing season for U.S. wheat production – persistent drought all winter and spring on the Southern and Central Plains and a hot and dry spell in the Northern Plains at peak heading season this summer. For context, winter wheat abandonment rates in the Plains were among the highest since the 1930s Dust Bowl.
But heavy snowpack in the Upper Midwest this winter and late spring showers in the Plains helped to keep some production hopes alive for the 2023 U.S. wheat harvest – perhaps more than the market had originally thought. USDA’s figures for hard red winter wheat (601M bu.) and other spring wheat (505M bu.) surpassed all pre-report analyst estimates.
Soft red winter (449M bu.) and durum (59M bu.) wheat production also came in on the high end of pre-report expectations. Total 2023 wheat production increased 4% from August 2023 forecasts. While it was well short of a good crop, it was not as dire as the markets had it pegged out to be.
With peak winter wheat sowing activities ramping up over the next couple months, the implications of this report – lower prices – could deter farmers from pursuing winter wheat acreage in the upcoming 2024 growing season. Hard red winter wheat stocks on the Plains remain tight, but the big soft red winter wheat harvest further east could lead fewer farmers to plant wheat for harvest next summer.
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