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Through the Looking Glass: October’s USDA Numbers

Friday, December 1, 2017
filed under: Marketing/Risk Management

       Any hope of a quick recovery in prices was put to bed by the November USDA production and supply/demand estimates. The USDA pegged the corn yield at 175.4 bu/ac.  Last year’s record corn yield was 174.6 bu/ac. That is a rather stunning number considering that many believed the 2017 growing season wasn’t nearly as favorable as last year.  The weekly crop ratings seemed to reflect that, with the “good” to “excellent” ratings consistently 10% to 12% below last year. In fairness to the USDA, we must say that farmers nearly everywhere were amazed at the yields once the combines started rolling.
       Some of the 298 million bushels of increased production from the October report was offset by a 75-million-bushel increase in the corn export forecast.  Corn ending supplies are now estimated to be 2.487 billion bushels. That compares to the estimate of 2.295 billion bushels at the end of the last marketing year. That is a lot of corn to chew through.
       The chart below is the corn yield history.  It’s been a good run of above- trend corn yields.
Source: USDA-NASS 11/9/17

       The USDA made no changes to the U.S. wheat production numbers in this report. The wheat export forecast was increased by 25 million bushels, and the wheat ending supply number was reduced by the same amount. Reduced U.S. wheat ending supplies is slightly positive. U.S. wheat ending supplies are now pegged at 935 million bushels. That compares to 1.181 billion bushels at the end of the previous marketing year. The bearish wheat story continues to be that Russia’s wheat crop continues to set new records with every report. They will remain a very strong competitor in world export markets.
       The USDA did not update any sunflower production estimates.  The next revised production estimates for corn, soybeans and sunflower won’t be released until the crop production annual summary is released on Friday, January 12, 2018. We do want to note that sunflower yields have also been generally better than expected. It looks probable the USDA will increase the yield and production estimates in January.
       The USDA did not change the soybean yield estimate from the October estimate. This was a small bearish surprise. Many analysts were looking for at least a slight yield reduction, based on the general talk that soybean yields were not as good as expected. Some still believe the soybean yield could be adjusted lower in the January annual summary. 
       The chart below shows the U.S. soybean yield history. It has also been impressive the last four years.
Source: USDA-NASS 11/9/17

       The USDA reduced soybean ending supplies just slightly from the October estimate. It stands at 425 million bushels, compared to 301 million bushels at the end of the previous marketing year. That increase would normally be considered bearish.
       The soy complex has been steady despite increased ending supplies.  Demand for soybeans remains very strong, led by China. If the USDA does trim the soybean yield estimate in January, that will also mean a reduction in ending supplies.
       The key to prices throughout the winter will be weather in Brazil and Argentina.  Obviously, any weather-related yield problems will be quickly reflected in the soybean market. The world is in the process of shifting to a “La Niña” pattern.  This relates to the sea surface temperatures in the Pacific between Peru and Australia. La Niña is when these temperatures are cooler than normal.  El Niño is when they are warmer than normal. A La Niña pattern can mean a hot and dry growing season for southern Brazil and much of Argentina. Not every La Niña event means crop problems. That will depend on the strength of the La Niña and how long it lasts.
       The bearish USDA reports mean it could be a boring winter from a price standpoint unless something happens to shake up the markets.  That “something” could be weather in South America; it could be some political or economic event; it could be a sharp decline in the dollar. Funds are still holding a record short position in corn, a large short position in wheat, and a modest long position in soybeans and soybean meal.                                 
* Mike Krueger is founder of The Money Farm, a Fargo, N.D.-based grain marketing consulting firm.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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