Many factors impact corn and soybean demand these days, and we’re going to touch on four of them in this blog, starting with the Environmental Protection Agency.

EPA is required to set the minimum volumes of advanced biofuels, cellulosic biofuels and total renewable fuels that need to be blended into the fuel supply each calendar year. The agency is near announcing its biofuel blending targets for 2021 and 2022. On Friday, rumors that the EPA is set to recommend unchanged to lower biofuel blending mandates in 2022 pressured U.S. corn prices.

To be clear, EPA is not formally making any changes to the Renewable Fuels Standard at this time. The proposed RFS levels get sent to the Office of Management and Budget, which starts an interagency review process, can take up to 90 days from the date it was received. Once OMB has completed its review, the proposed levels are then sent back to EPA. Typically, that results in EPA publicly releasing them soon thereafter with an accompanying public comment period.

The levels could change during this review process before they are formally proposed by the EPA. By law, the agency is to finalize those levels by Nov. 30.

Policy uncertainties like this likely generate price volatility. However, it likely does not change the market’s view that the renewable diesel and sustainable aviation fuel expansion, incentivized by low carbon programs, is expected to support the soybean complex via the oil share and maintain a record U.S. crush pace in a relatively tight soybean supply environment.

Fresh yield estimates

Fundamentally, the U.S. new-crop soybean balance sheet has no room for additional demand assuming our current production forecast of 4.33 billion bushels, which is associated with a 49.9 bushel per acre yield.

The big news last Friday was the announcement of a crop tour soybeans yield at 51.2 bushels per acre and a 4.436 billion bu. crop, compared to USDA’s estimates at 50 bu. per acre and 4.339-billion-bu. production. The recent U.S. sales data works well with USDA’s average farm future prices, while Brazil’s old-crop supply tightens, and U.S.-origin soybeans become more competitive.

The main uncertainty surrounds China’s current marketing year requirements that are to be sourced from the U.S. Competition from Brazil in early 2022, a depreciated Brazilian currency (real) and the funds having a substantially long position are seen as headwinds in this scenario.

In the near term, a major signpost is the pace of China’s purchase of U.S. soybeans to be shipped in the October/February timeframe. November soybean futures are trading near the lower end of the recent price range.

Corn futures closed almost 30 cents lower this past week on improved U.S. weather and a stronger U.S. dollar. Data from the crop tour this past week did not suggest major changes from USDA’s current yield forecasts. The tour came in with a corn yield of 177 bushels per acre and a 15.116-billion-bushel crop, which is larger than the 174.6 and 14.750 estimate from USDA on Aug. 12. Advance Trading, Inc. has a 176.5 bushel per acre yield estimate that correlates with a 14.533 billion bushels corn crop. (Farm Futures had announced a farmer survey generating 178.7 bu. per acre corn and 51.3 bu. per acre soybean yields in 2021.)

Most fundamental analysts are assuming a U.S. corn crop of approximately 15 billion bushels and carryout above 1.1 billion bushels for the 2021/22 marketing year (starting Sept. 1). The market appears to be range-bound in the near-term without a major catalyst, but the U.S. farmer has significant profitability on the table that needs to be mitigated in some form.

What are the pre-harvest upside risks? Larger corn imports and a potential La Nina later this year, which is usually associated with dry conditions in southern Brazil and Argentina. From the downside, prices could move lower on reduced demand from ethanol (due to higher usage of sorghum), lower U.S. biofuel blending mandates, a decline in corn for feed use, and lower soybean prices.

Monetary policy impacts

Midweek last week the market had a fairly significant sell-off, generally on the backs of the U.S. Central Bank indicating that it may move away from its current highly accommodating monetary policy. Is there more of this to come? Possibly, whenever the U.S. unemployment rate is below 5% and U.S. inflation rate of 2% for consecutive months is achieved.

This sell-off breached some very important technical levels for corn and soybeans below their 50 and 100-day moving averages, respectively. As of this writing, December corn and November soybeans are still below those critical levels. These moving averages can act as a ceiling as we move forward, in a technical sense.

Protect profits

Keep your fundamentals simple and in perspective both on the farm and from a macroeconomic sense. Protect profits, have a systematic approach to your marketing plan, get a trusted advisor but not a ‘guru’ and hopefully we can have a fruitful balance to the last part of the growing season. Make sure you check out the Farm Progress Show in Decatur, Ill., from Aug. 31 to Sept. 2.

Contact Advance Trading at (800) 664-2321 or go to www.advance-trading.com.

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The risk of trading futures and options can be substantial. All information, publications, and material used and distributed by Advance Trading Inc. shall be construed as a solicitation. ATI does not maintain an independent research department as defined in CFTC Regulation 1.71. Information obtained from third-party sources is believed to be reliable, but its accuracy is not guaranteed by Advance Trading Inc. Past performance is not necessarily indicative of future results.

The opinions of the author are not necessarily those of Farm Futures or Farm Progress.