In this day of big data and round-the-clock trading, government statistics sometimes seem to arrive by Pony Express. This could make it difficult to determine how much corn and soybeans will be left over a couple weeks from now when the 2015 crop marketing years finally end.
Sept. 1 ending stocks for old crop form the beginning inventory used in supply and demand equations for the coming year. With 1.7 billion bushels of corn expected to be on hand as combines start rolling, the question doesn’t have a whole lot of urgency for that crop. But estimates of 2015-2016 soybean inventories are shrinking. If they get even tighter than current projections it could help alleviate bearishness caused by what looks like a record 2016 crop.
The strong pace of soybean exports and crush this summer convinced USDA to raise forecast usage in its Aug. 12 report, dropping projected Sept. 1 stocks to 255 million bushels. A decade ago ending stocks of 256 million bushels brought average cash prices of only $5.66 because it represented a supply of more than 31 days. But demand is up nearly billion bushels since then. Those same 255 million bushels would last less than 24 days. This ratio of stocks-to-use isn’t nearly as tight as it was when beans reached all-time highs in the wake of the 2012 drought. But this key determinant of price is still tight enough to affect prices, perhaps significantly.
USDA will report its estimate of Sept. 1 stocks on Sept. 30. Until then traders can only guess how many beans will be left.
Sure, the USDA reports exports on a weekly basis. But these totals differ from the official statistics kept by the Census Bureau, which are delayed significantly. The most recent Census export data is only through June. July totals won’t be out until Sept. 2, and the number for the entire 2015 year won’t come out until after USDA releases its stocks report. September-June Census exports for soybeans are running almost 4% more than USDA’s totals, enough to make a difference.
The other big component of soybean usage comes from crushers. Members of the National Oilseed Processors Associate report usage by the middle of the following month. Not all plants belong to the ground; USDA weighs in with its crush report on the first business day of the next month. Again, the official data for the entire year won’t come out until after the USDA stocks report.
But even if exports and crush were known exactly, the Sept. 1 stocks number stiff could offer a surprise. The agency uses this report to update its estimate of the previous year’s crop. Most years this adjustment isn’t big, but occasionally the discrepancy is large enough to send more shock waves through the market.
If the 2016 crop is as big as USDA forecast Aug. 12 – nearly 4.1 billion bushels – old crop carryout may not make much difference. But if the 2016 crop turns out smaller, every bushel may count, perhaps a lot.
Corn prices spiked to new contract lows in the wake of USDA’s bearish 2016 production forecast on Aug. 12. But prices are up more than 20 cents, starting to trigger some buying from chart traders. That in turn convinced fund managers to buy back bearish bets.
Some growers scoffed at the big yields USDA found, 175.1 bpa nationwide. But weekly crop ratings continue to suggest that type of potential, while our model based on the Vegetation Health Index, a satellite reading, is almost that strong too. Land farmers certified for the government program also suggests USDA’s big acreage estimate should hold. So the first 15 billion bushel crop could become a reality – just two years after the 14 billion bushel milestone was passed.
More bushels per acre lower the cost of production, so growers should update their financial positions to see where they’re at for 2016. And when you make storage plans, take a look at what’s happening to the cash market now: It’s sinking fast as farmers get rid of remaining 2015 inventory.
Soybeans are in the throes of a battle. Supply and demand are fighting for the soul of the market.
Unchanged carryout and a crop near the size forecast by USDA likely would be enough to keep supplies adequate in the coming year unless production problems develop in South America. But any weather trouble there could reverberate quickly. Argentine growers hope to plant more corn this year and likely less soybeans. Expansion plans of Brazilian growers will be held back by their stronger currency. The real is strengthening against the dollar, as unlikely as that seems given the country’s troubles. But emerging markets are hot right now and interest rates above $14% are luring investors despite the risk. Growers whose prices are set in dollars receive fewer reais as a result.
Soybeans have been flying off the shelves lately because the U.S. has the cheapest supplies on the world market. China is the big buyer, and if that country’s appetite continues to grow, demand could be strong enough on its own to lift prices higher into the winter.
The difference is huge. Bearish supply and demand could take cash prices below $9. If the market turns bullish, look for $11 or more.
Wheat prices are mostly holding to trading ranges, at least for winter wheat contracts. That’s not a bad thing after futures for hard red winter wheat fell to their lowest level in a decade this summer.
Exports of hard red winter wheat are starting to pick up a little. Rain slashed production in France and Germany’s higher protein crop also appears smaller. That’s also giving a boost to U.S. spring wheat prices, which have clawed back more than half their selloff from this year. Rain is slowing harvest on parts of the northern Plains as well.
Despite these green shoots, don’t expect miracles. Russia has a huge crop to sell and production in Ukraine turned out better than expected. Production in Argentina and Australia appears off to a good enough start, and rain forecast for the central and southern Plains could provide good seeding conditions here.
Winter wheat basis in the country is sinking fast as growers dump supplies they can’t store into fall. Carry is still steady for hedgers of hard red winter wheat, but September-May is down some 20 cents for soft red winter wheat. That suggests keeping storage hedges in the December for now.
Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.