USDA’s Quarterly Stocks Report, released Sept. 30, was a bit of a surprise with more corn and bean stocks than the trade anticipated.
Now that we’re past that, the October Supply and Demand Report is what is on traders’ minds as we enter the weekend. Let’s look at some of the possibilities and what producers might want to consider as we approach a big report.
First of all, the main thing traders will look at will be yields and most importantly carry-out. When it’s all said and done, carry is where we hang our hat when it comes to price determination. However, everyone is interested in what the USDA says average yields will be. Given this is just the second report in which we’ll see boots in the field, it’s become a very important report.
Let’s first take a look at corn yield. In September USDA forecast a 176.3 yield, up a bit from August. While our team feels this crop is good-sized, we also feel yield won’t get adjusted much this month. With the western-corn-belt seemingly above expectations, the trend in the eastern-corn-belt has been much less impressive. The range of trade guesses is 174-178.5, with AgMarket.Net coming in at 175.9.
Our bias is to lean towards minor changes, if any.
Bigger bean yields
For bean yields, we feel this crop is getting bigger. I’ve spoken to few soybean producers who are disappointed in their bean yields. In fact, many have reported record yields, so the consistency has been much better for the bean crop than with regards to corn.
The range for trade guesses on beans is 50.5 to 51.5 -- a much tighter range. My crew guessed at the high end at 51.5, and while I think this is a good estimate for this month, my personal opinion is the bean crop is likely to get bigger even after this report.
Now, what do these yields mean for carry? With regards to corn, we again ‘added stocks’ to the bottom-line with the stocks report, so the assumption is, carry will grow. If yield comes in below a month ago, it could certainly tighten the situation a bit, but with some cushion, I doubt we see last month’s 1.408 billion bushels shrink by much; Our guess is at 1.353, which is certainly in the bottom half of guesses.
It is our opinion that demand has been held back a bit by USDA when it realized this wasn’t a monster crop after all, and that their assumption was for a demand rationing rally. Since prices haven’t rallied substantially over the last several weeks and with strong energy prices, it appears ethanol grind, feed usage and even exports could be as good or better than current forecasts.
When it comes to bean carry, we must remember how much more we’re carrying into this 21/22 crop than the trade had assumed. With last month’s USDA report showing a carry of 185 million bushels for this marketing year, we’re sure to see something bigger this month. Given export shipments and sales running well behind a year ago, it’s tough to assume demand is going to get better than September’s estimates. Our team is calling for carry of 364 million bushels, which is close to the top of the range of guesses (161 to 373 mb).
Impacts of the report
Now, what does a producer need to consider with regards to the possible impacts of this report? Given range-bound trade for the last several weeks, we certainly want to keep an eye on any outlier numbers. IF we’d see a bigger yield adjustment than expected, up or down, the ability to push these markets outside of our ranges certainly is heightened.
As a producer our hope is for a rally through resistance. However, we also should strongly consider protecting ourselves against the possibility the breach of our range is to the downside.
Given the best profit margins we’ve seen in years, I would urge producers to consider quantifying some worst-case scenarios. If we want to play the long side, there’s plenty we can do on paper-with a defined risk.
My last point is to please be careful as we are in the thick of harvest. I know we all want to get done and put equipment away for the year. However, as I always have to remind myself, even if it takes a bit longer, keeping our family and employees safe is worth the extra time. Good luck through the remainder of harvest.
Feel free to reach out to me or anyone on the AgMarket team. We’d love to hear from you.
Reach Matt Bennett at 815-665-0462 or [email protected].
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