Market analyst: Boomerang

Ray Grabanski
Special to the Farm Forum
Columnist

After a bullish USDA report on Aug. 19 where they cut corn yields below 175 bushels and soybeans to 50 bushels, the market took a nosedive on the biggest rain event of the summer in the northwest Corn Belt.

North Dakota, South Dakota, Minnesota and northern Iowa received their best rains so far last weekend, and the forecast and actual event all pushed prices lower. Pro Farmer also had their tour last week, and they were anything but 'pro farmer' in their numbers as they predicted corn yields at 177 bushels, and soybeans at 51.2 bushels — well above USDA.  

So we actually dropped below where prices were before the bullish USDA report. My father used to say "the market has a way of making the most number of people wrong most of the time!"  And boy, was that true last week, as funds and professional traders unloaded long profitable positions into anyone who bought the bullish report.

Boomerang. Soybeans dropped 80 cents and corn 40 cents for the week after the bullish report.  

Flash forward to this week, and prices are recovering nicely from the selloff after the report. Did the market just bounce out all the weak hands from the bull market? That could very well be true.  

Crop conditions were released Monday afternoon have to be disappointing for bears, as the best rain in the northwest Corn Belt all summer failed to move the needle higher. In fact, corn conditions dropped 2% to 60% rated good/excellent, and soybeans dropped 1% to 56% good/excellent.

The yield impact of these changes was much more significant in soybeans than corn, with the Pro Ag soybean yield model dropping 0.33 bushels per acre to 48.6 bushels (vs. 50 bushels USDA) and corn dropping only 0.25 bushels to 177.8 bushels (vs. 174.6 USDA).  With another 30 million bushels of soybean production cut last week due to dry conditions, we just lost 20% of the projected carryout! That is an eyebrow raiser, especially when prices were 72 cents lower last week on that northwest Corn Belt rain. 

Other numbers show corn and soybeans are more advanced than normal, and that is especially true in the northwest Corn Belt where crops are drying down from being pushed by heat/drought all summer. In fact, rains in the belt last week may not benefit lighter soils much as crops there are pretty much mature in both corn and soybeans.

And there isn't much production expected out of that drought ravaged ground. The heavier soils will benefit some from the rains, as the crop can still be salvaged to produce 50-80% of normal production there. But overall, its still a devastating drought situation in the four northwest Corn Belt states.   

Weather forecasts on Tuesday call for the biggest rains in Minnesota and Wisconsin this coming week, with nearly 100% coverage of 1.5 to three inches, locally four to six inches or higher rains.  For Minnesota, this is going to greatly benefit the crop in the drought-ravaged state; but for Wisconsin, this could become a harvest nightmare at this state has been wet since mid-June.

Most of the rest of the country stays dry, with below average precipitation. In fact, there will be very little rain in any state that doesn't border Minnesota and Wisconsin, so its likely most Corn Belt states will lose some yield potential due to late season moisture stress. 

The key question, though, is whether the market will go up now in response to the soybean situation (Pro Ag soy yields are 1.4 bushels below USDA or 126 million bushels, and well below Pro Farmer's ridiculous 51.2 bushel yield). Or will the market wait until after harvest? So far, traders are making sure it isn't now. Can they keep the market cap on a few more months through harvest? With a sharp rally of 40 cent soybeans today, maybe the bears are out of ammunition to keep the market lower anymore.

Essentially, if our soybean yield of 48.6 bushels per acre is correct and demand is correctly anticipated by USDA, then we have zero carryout of soybeans this year. Corn is a completely different animal, as USDA is already below our Pro Ag yield model projection, so the corn carryout could actually get more plentiful if our yield projection of 177.8 bushels is correct (close to Pro Farmer). But soybeans is a different animal, and it appears prices need to go much higher to allocate our short 2021 crop.  

Stay tuned, there may be more "boomerangs" left in this market.

Ray Grabanski can be reached at raygrabanski@progressiveag.com.