Farm Progress

New report raises world corn, soybean and wheat supply numbers.

Bob Burgdorfer, Senior Editor

December 9, 2016

6 Min Read

Supply-and-demand projections for the recently completed U.S. corn, soybean and wheat harvests were largely unchanged in a USDA monthly report released on Friday, which disappointed soybean traders who were looking for a small reduction in supplies.

Soybean futures in Chicago dropped several cents shortly after the report, to trade about unchanged for the day. Corn futures also slipped to trade about unchanged for the day after being up 2 cents earlier.

The winter wheat markets barely moved, and spring wheat dropped about 2 cents.

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“I thought the agency could have trimmed its estimate for soybean ending stocks due to strong exports, so that was a bit of a disappointment, which is why the market is starting to leak lower,” says Bryce Knorr, Farm Futures senior grain market analyst. “Soybeans are at a turning point, trying to hold on to their bullish uptrends in both old and new crop. Any hint of cancellations from China could send the market lower, but so far that’s not happening, despite what looks like a good South American crop.”

A recent robust export program, particularly to China, had traders expecting USDA to trim 10 million to 20 million bushels off of the 2016-17 soybean ending stocks. However, USDA left the exports unchanged at 2.05 billion bushels and ending stocks at 480 million bushels.

“China’s imports in the first three months of the marketing year were slow, so it may need to keep buying just to keep crush running ahead of the Lunar New Year, when meat consumption surges,” says Knorr.

USDA left corn ending stocks unchanged at 2.403 billion bushels and wheat at 1.143 billion bushels. Traders, on average, had expected small increase in the corn stocks and a small reduction in wheat.

In South America, USDA kept Brazil’s soybeans at 102 million metric tons and Argentina’s at 57 MMT. It did raise Brazil’s corn crop to 86.5 million tons from November’s 83.5 million, but left Argentina’s at 36.5 million.

“Conditions in Brazil look favorable, but parts of central and southern Argentina are trending drier. That will be the key area to watch in coming weeks,” Knorr says of the soybeans there.

In the world use and supply tables, USDA raised corn ending stocks to 222.25 million metric tons from November’s 218.19 MMT; soybeans went to 82.85 MMT from 81.53 MMT, and wheat to 252.14 MMT from 249.23 MMT.

The increases were in the world numbers are bearish, says Knorr, who notes the gains are due to better crops, including the corn in Brazil and wheat in Australia.

 Australia’s wheat crop was raised to 33 million metric tons from November’s 28.3 MMT. An increase was expected as Australian sources had been forecasting a big harvest. No changes were made to the Black Sea wheat crops, while Canada’s wheat was raised slightly.

“Supplies remain burdensome, which is why the market is having trouble,” says Knorr. “That said, the outlook for prices may depend on whether investors want to keep adding commodities to their portfolios as a hedge against inflation. Watch next week’s discussion from the Federal Reserve, when an increase in interest rates is all but certain.”

Strong soybean market brings early Christmas

Soybeans charged above $10 a bushel in the Chicago futures market in early December to present a selling opportunity for farmers looking to lock in profitable prices for next year’s harvest.

During that rally, cash prices for 2017 soybeans at a number of Midwest locations topped $10 a bushel to prompt farmers to pre-sell some of that harvest. Even in areas where the cash bids were under $10, they were high enough to prompt farmer selling.

CBOT soybean futures for November 2017 delivery peaked at $10.38 a bushel in early December, which was a 5% increase in about a month.

 “We had quite a bit of selling once we got back to about $10,” says a central Illinois dealer, who was paying $10.02 cash early in December.

In Iowa, farmer sales of new crop were active for a short time in December, where soybeans for fall 2017 delivery brought $9.50 to $9.70, depending on location. Selling then slowed as farmers apparently awaited further gains.

Although a year away, many of those prices should pencil out profitably for farmers who have managed input costs and cash rents. But while the rally has been exciting for farmers, Farm Futures advises caution before selling too much of next year’s crop.

“Assuming yields of 47.2 bushels per acre and $456 costs, selling 20% cash soybeans for $10 gives you a small profit, if yields or prices don’t go down. If they do, you’re at risk of losing money overall,” says Knorr.

“Growers are on the hook for the first 15% of revenues if they take Revenue Protection crop insurance at 85% of trend-adjusted yield. Most don’t, so they have even less protection against a decline in revenues from lower prices or yields,” he says. “I’ve recommended starting with a modest sale at $10.50 November 2017 futures to provide a little more cushion.”

Also, Knorr says even higher prices may occur.

“History also suggests better pricing opportunities are ahead in 2017 — that’s the trend 12 of the last 13 years. Seasonal trend charts for old- and new-crop soybeans continue to look bullish,” he says.

The recent gains in the soybean futures followed a number of big export sales, higher vegetable oil markets in Asia and talk of dry conditions in Argentina, where soybeans will be harvested in about three months. The export sales in late November and early December were to China and “unknown destinations.”

In addition, domestic use has been strong. Knorr explains that the U.S. soybean crush during the first half of 2016 exceeded expectations.

Corn prices have been less volatile, particularly for next year’s harvest. As a result, farmer selling of that crop has been fairly light.

Drought spreads in wheat country

The National Weather Service’s monthly Drought Monitor report released in early December said 30% of the U.S. winter wheat area was in drought. That is up from 25% the previous month.

Winter wheat is in dormancy now, but planting and emergence this fall was impeded by the drought conditions, particularly the soft red winter wheat in the Southeast. The Drought Monitor said 100% of the wheat acres in Arkansas, Kentucky, Mississippi and Tennessee were in drought areas. Elsewhere, 58% of Colorado wheat, 36% of Kansas’, 42% of Nebraska’s and 40% of Oklahoma’s were in drought.

USDA’s final weekly crop progress report of the season in late November rated 58% of the winter wheat good to excellent, which was up from 55% a year ago. However, Arkansas wheat was rated 50% good to excellent, Kentucky’s 35%, Mississippi’s 19% and Tennessee’s 34%. In addition, Colorado’s wheat was 47%, Kansas' 52%, Oklahoma’s 53% and Nebraska’s 53%.  

Spring rains can correct a lot of problems for wheat. That happened in 2016 in Kansas, when the wheat went into dormancy in worse condition than it is now. It flourished after spring rains to produce one of the state’s largest ever harvests.

Wheat acreage has been on the decline and is expected to be lower in 2017, as low prices for the grain have farmers in traditional wheat areas switching to more profitable crops, particularly corn.

The Drought Monitor also showed 13% of the U.S. corn area and 18% of the soybean area were in drought, most of that being in the Southeast.

Burgdorfer is senior editor for Farm Futures.

       

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