Harvest nearly over; election/USDA report

Farm Forum

11/08/16 — This week as harvest of corn and soybeans is nearly wrapped up, a lot of activity occurs including the U.S. election, and the USDA report Wednesday morning at 11 a.m. The U.S. election has some uncertainty as we enter the final day, and USDA reports always have a degree of uncertainty, with a surprise one way or another sure to have a market reaction.

Weather is always important, but this year’s harvest weather has been about perfect for the majority of the U.S. Mostly warm and dry weather has occurred this entire harvest, and more of the same weather is forecast to be on the way. Weather forecasts the next 7 days have dried out considerably in the U.S., with little to no precip forecast for the U.S. so below normal precip. The same forecast of below normal precip is now in the 8-14 day forecast as well. Temps are still forecast to be above to much above average, especially warm in the North Central U.S. So the remaining U.S. harvest will likely wrap up in pretty good shape.

South American (SAM) weather forecasts add still more precip into the 7 day and 8-14 day forecast, putting the precip forecast back near normal for the production region. Temps are also mostly normal, so this is a good forecast for South America as they gear up to plant another crop.

After the election and any surprises we might get from it, we get the USDA November crop report at 11 a.m. Revisions in both soybean and corn yields will come as they always do in November, with one more revision to final yields in the January crop report. Expectations are for a small decrease in corn yields and small increase in soybean yields; deviations from these expectations will cause market fluctuation. Demand has been outstanding for soybeans, with 96.4 mb shipped last week and over 100 mb the previous 2 weeks. Corn was OK at 35 mb, wheat at 18.2 mb this week.

Crop progress numbers continue to suggest we are grinding through this year’s harvest. Corn harvest progress yesterday afternoon was 86%, ahead of normal 1%. Soybeans were 93% harvested, up 2% from normal. So in spite of record large yields, harvest progress has moved from being slightly behind normal to slightly ahead of normal as we near completion.

Cotton is 56% harvested, behind normal by 4% while sorghum is 84% harvested, 6% ahead of the normal 78%. Sugarbeets are 89% harvested vs. 95% normally, with sunflowers 81% harvested vs. 71% normally. Winter wheat is 91% planted, 1% behind the normal 92% pace, and 79% is emerged vs. 78% normally. Conditions were unchanged from last week at 58% rated G/E, up from 51% last year. So as we start a new production year in winter wheat with growing crop, the conditions are above average, and this is coming off a record large winter wheat yield as well.

Pro Ag has been expecting one more push lower back down to the old lows given the record large corn and soybean crop. So far that hasn’t happened, as the market actually rallied over the past month. However, we continue to target the old lows in corn at about $3.15 Dec. and $9.49 Jan. beans to remove current hedges, targets which are well below current prices. Perhaps the election and the Nov. USDA report will put us on a path to get there?

As we said last week, since prices of corn and soybeans have risen nicely into the late harvest, we are approaching some prices for storage hedges that would be favorable for locking in a return to storage. Using the carry in the market and expected basis improvement from the horrific levels basis is currently at, we could make some money storing corn and to a more limited extent, even soybeans (mostly for basis improvement). So let’s target $3.90 July corn for a storage hedge on 10% of remaining corn, and $10.45 Jan. beans for a storage hedge on 10% of remaining 2016 soybeans. We will get started on these storage hedges, and see where the market takes us from here. Let’s also target $10.15 Nov. 17 to price the first 10% of 2017 soybeans at these profitable levels, as current expectations are for a 3-4 million acre rise in soybeans acres in 2017. So that at least is a starting point for pricing 2017 crops.