(Agrimoney) – The US corn and soybean harvests could get bigger yet.
The US Department of Agriculture surprised investors in the last session by hiking its estimate for the domestic soybean yield to a clear record high of 50.6 bushels per acre, while lowering its forecast for the corn yield by a modest 0.7 bushels per acre to 174.4 bushels per acre, a smaller downgrade than expected.
But there is the potential for a further boost to production prospects, from two sources.
The first is from the potential of increased ideas of the amount of both crops sown, after data from the Farm Service Agency (FSA) implied that the number of acres that farmers were unable to plant in spring thanks to eg wet weather were unexpectedly small.
Extra area?
OK, the actual sowings numbers from the FSA, at 90.0m acres for corn and 82.0m acres for soybeans, are below the official USDA numbers of 94.1m acres and 83.7m acres respectively.
But “sometimes the problem with the FSA acreage numbers they give us is that the really big farm operations don’t bother submitting data to FSA as they are not involved with the programme”, said Terry Reilly at Chicago broker Futures International.
In short, the FSA data structurally underestimate the true figure.
According to Futures International, which raised its own “planted area for corn by 550,000 acres and soybeans by 275,000 acres based on the September FSA numbers”, the FSA data imply corn sowings of 95.1m acres, ie an extra 1m acres or so on top of what the USDA currently has pencilled in.
For soybeans, the implied correct figure is about 84.0m acres, is an extra 300,000 acres or so.
‘Big crops get bigger’
The second cause for wondering whether the production estimates may get bigger yet is from the potential for upgrades to the USDA yield figure as harvest progresses.
Such a phenomenon is not exactly unusual in years of large harvests, and indeed is recognised in the Chicago traders’ adage “big crops get bigger”.
For corn, yields issued in September Wasde reports have ended up being upgraded in 10 years out of the past 15, with the record for soybeans four years out of the last four.
And yield ideas were hardly undermined by separate USDA data overnight showing the proportion of corn rated in “good” or “excellent” condition holding at 74%, and soybeans flat at 73% – both very strong readings for the time of year, when a little deterioration would be expected.
‘Not quite up to expectations’
“It is difficult to shake off ‘big crops get bigger’ syndrome,” said Richard Feltes, at RJ O’Brien.
Unless, that is, “yields during peak harvest are consistently below expectations”.
And there lies hope for corn bulls at least, with a growing theme that harvest yields so far, while coming in good, are not as bumper as had been expected – albeit remembering of course that harvest is only 5% complete (a little behind the average of 7% by now).
“Early yield reports have been strong just not quite up to expectations,” Benson Quinn Commodities said.
“I wouldn’t rule out another yield reduction in the October [USDA Wasde] report.”
Harvest lows ahead?
In short, there is still considerable talk that corn and soybean futures, having stage an early-September recovery unusual given the imminent prospect of harvest and a jump in supplies, will succumb to such pressure yet.
RJ O’Brien’s Richard Feltes said: “Look for harvest lows for December corn in the $3.10 a bushel area, and soybeans at $9.20 a bushel,” prices notably below current levels.
Rabobank said: “We still expect corn and soybean prices to find their lows over the next few weeks during the US harvest,” adding that the corn result “would need to end up well below 170 bushels per acre to justify a price rise towards $4 a bushel”.
History lesson
Still, price falls were small in early deals on Tuesday, with soybean futures for November down 0.1% at $9.67 ¾ a bushel as of 09:10 UK time (03:10 Chicago time), after failing in an early attempt to hold back above their 200-day moving average.
Corn futures for December were 0.2% lower at $3.39 a bushel, after failing in an effort earlier to retake their 50-day moving average for more than a few hours.
One factor on bulls’ side is that the USDA has a habit, in September Wasde reports, of underestimating demand for US corn (two out of the last three years) and, in particular, soybeans (eight out of the last 10 years) too.
And there is talk that “China is in [the market] for October soybeans”, Futures International’s Terry Reilly noted.
Thinner palm oil stocks
As an extra support for the soy complex, the oilseeds market had some more bullish data out on Tuesday, in the form of statistics on Malaysian palm oil production, exports and stocks.
Stocks turned out lower than the 1.60m tonnes expected, at 1.46m tonnes – the lowest level since January 2011.
The decline reflected both weaker-than-expected Malaysian output last month, and stronger-than-expected exports.
OK, palm oil itself stood 0.9% lower at 2,617 ringgit a tonne after the data, but that reflected too catch up with rival vegetable oil soyoil, which tumbled 2.2% in Chicago in the last session.
Soyoil futures for December bounced 0.2% to 32.69 cents a pound on Tuesday, making it a rare gainer in Chicago.
‘Better demand at lower values’
Indeed, even wheat, which defied selling the last session, succumbed this time, trading 0.4% lower at $4.07 ¾ a bushel for December delivery.
Sure, the USDA did in Monday’s Wasde briefing cut its estimate for world stocks by more than 3.7m tonnes to 249m tonnes.
The weaker inventories, “while still record, reflect better demand at lower values and the need to go somewhere with what appears to be a never ending supply of feed wheat”.
But that better demand means, of course, competing strongly on price with corn, which in the last session had regained $0.07 a bushel in price advantage compared with wheat.
Cotton hopes dashed
In New York, cotton futures managed decent gains, of 0.9% to 67.27 cents a pound – but that was only after a plunge of more than 3% in the last session, after the Wasde raised the estimate for US carryout stocks for 2016-17, rather than cutting it by 280,000 bales as investors had expected.
“The USDA failed to upgrade its forecast for US exports”, Tobin Gorey at Commonwealth Bank of Australia noted.
“After several weeks of improving US export sales, the market had pinned its hopes on a better trade outlook.”
The USDA crop progress report overnight showed a small drop in the proportion of US crop rated “good” or “excellent”, but only of 1 point, to 47%.
“Fears over damage from Tropical Storm Hermine appear to be in the rear‑view mirror,” Mr Gorey said.
