Bullish USDA report?

Farm Forum

10/14/14 — It’s not often that production numbers get hiked in a fall report, and the report is still considered bullish. But that’s exactly what happened on Friday, October 10 when USDA released its October production and supply/demand report.

The government report Friday at 11 a.m. for October was bullish, as harvested acreage of corn and soybeans were cut 700,000 acres each (200,000 acres more than expected in corn and 300,000 more than expected in soybeans). They also cut stocks of soybeans 25 mb more than expected due to the smaller beginning stocks (from the stocks report Sept. 30). They also hiked yields less than expected, hiking corn yields 2.5 bu/acre to 174.2 bu/acre (0.5 bu/acre less than expected), and hiking soybean yields only 0.5 bu/acre (0.5 bu/acre less than expected). Ending stocks of corn were hiked, but 63 mb smaller than expected (2.081 billion bu), and cut wheat ending stocks such that they were 50 mb smaller than expected (654 mb).

World ending stocks were larger than last month in corn (190.6 mmt) and soybeans (90.7 mmt), but were smaller than expected (2 mmt in corn and 0.2 mmt in soybeans). Wheat world ending stocks were cut instead of hiked as expected to 192.6 mmt, down from 196.5 mmt last month. Overall, this was considered a bullish report as stocks were smaller than expected (even though corn and soybeans production was hiked from last month). In spite of that, after briefly rallying following the report, prices turned around and went lower to finish the day, down over 10c in corn and over 20c in soybeans by the end of the day.

Monday, October 13, was a turnaround day, with grains sharply higher following their sharply lower performance on Friday, following what was a bullish report. Traders started to pay attention to the bullish report Monday, with buying emerging along with the rains that were falling in the Corn Belt that were delaying harvest. The strong performance Monday, October 13 puts into question whether or not prices have bottomed already.

But to bottom, all the bearish news would have to be in the market, and so far Pro Ag doesn’t believe the crop size is fully absorbed in the 47.1 bu/acre soybean yield estimate and the 174.2 bu/acre corn yield. Instead, it’s likely that crop sizes will be raised in the November and Jan reports, with Pro Ag yield models at 177.5 bu/acre corn and 47.7 bu/acre soybeans. So ending stocks will need to be hiked in future reports with the production numbers, and it’s likely prices will need to go to new lows with that news. Most private estimates are even larger than our yield models based on actual harvest yields, which are coming in mostly better than expected (especially in the south and central Corn Belt). Unfortunately, if prices do go lower in the Nov. and Jan. reports, the crop insurance protection will expire in October so producers won’t get the benefit of that protection for their revenue policies if prices stay up here where we are or rally the rest of October. (Did USDA sandbag their yield numbers for that reason?)

As we’ve said before, we expect the Nov. and final Jan. report to show hikes in corn and soybean yields as “large crops get bigger” as our Pro Ag yield models and harvest yields suggest they will. As long as crop sizes continue to go higher, prices will need to go lower to stimulate demand. We remain 100% hedged for multiple years as the trend is down, and we are going to have record shattering, mammoth large yields of grains in 2014. Our targets for removing hedges remains $8.40 soybeans and $3.05 corn.