Ahead of the Sept. 12 USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE), market analysts weren’t expecting major slashes to corn and soybean yield estimates.
For corn, analysts expected to see a national average yield at 167.2 bu. per acre with production at 13.672 billion bushels, according to the pre-report estimates compiled by Reuters. For soybeans, the yield was expected at 47.2 bu. per acre, pa with production at 3.577 billion bu.
Those estimates weren’t far off from USDA’s calculations. As of Sept. 12, USDA pegs corn production at 13.8 billion bushels. Yields are expected to average 168.2 bu. per acre, down 1.3 bu. from the previous forecast.
Soybean production is forecast at 3.63 billion bushels. Yields are expected to average 47.9 bu. per acre, down 0.6 bushel from the previous forecast.
“We didn’t expect too much of a cut to the corn yield estimate in this round,” says Chip Flory, AgriTalk host. “I think this points us in the right direction and it shows us what the trend is going to be.”
Brian Splitt, market analyst with AgMarket.net, agrees.
“The USDA lowered yield, and I think that'll hopefully set a precedent that they're going to continue that trend as we move into the next WASDE reports in October and November,” he says. “I think a lot of the trade was concerned USDA may potentially increase corn yield because of the growing conditions we've seen recently, but they lowered it instead.”
Last year, Splitt says, USDA did a similar pattern where they increased the corn yield in August just to reduce it throughout fall.
“They really overshot on the August WASDE report a year ago and potentially have done the same thing this year,” he says.
Since USDA lowered both soybean and corn yields, Splitt expects the trade will be trying to price in another yield reduction in next month’s WASDE report.
When USDA starts pulling the husks, Flory also expects USDA will further adjust down the corn yield estimate.
“When they find out just what's out there, it's going to be closer to 163 to 168,” he says.
Strong Basis Points to Two Scenarios
Basis levels are extremely strong, in many parts of the country, Splitt notes. He says that paints one of two pictures.
- There's not as much old crop out there, as USDA is report. “That's entirely possible,” Splitt says. “The difference between this and a lot of previous years is we're not going to have a lot of new crop to commingle with old crop. So that could potentially be a bullish scenario.”
- Elevators would rather take the known than the unknown. “We know this new crop is going to be a nightmare to handle—it's behind, it's going to be low test weight, it's going to be wet,” Splitt says. So, elevators are willing to pay up right now for the high-quality old crop, knowing that a couple months down the road we're going to dock you for the nightmare of the new crop.
“We'll have to see which of those two scenarios plays out,” Splitt says. “But I see both of those as being potentially very viable.”
Demand Side Provides Bearish Tug
Positive: Yeah. And on the old crop balance sheet, they added 20 million bushels to the to the crush estimate and 45 million bushels to the export estimate. So total of a 65 million bushel increase in the old crop being used adjustments. That's a positive, I think it might have been mostly expected.
We've got our carry over close to a billion bushels now, 1.005 billion bushels, and then you've got the smaller beginning stocks for the 2019/20 marketing year. You've got the roughly 50 million bushel cut to the crop estimate from August. All of the sudden we're looking at a carryover over estimate down about 110 hundred and 115 million bushels from last month and down at 640 million bushels. 640 million bushels is still a lot of soybeans, but it's a whole lot more manageable than 1 billion bushels.
Looking forward, Flory says the bearish tug on the market is going to be the demand side.
“If we have another false start with China this time, then then we're going to see some more pressure coming in here,” he says. “We know the supply side has a problem for the 2019/20 marketing year, but there is so much riding on getting the demand back. If we don't see that happen in the 2019/20 marketing year, then we're going to we're going to deal with lower prices.”