For the most part, Mother Nature has provided U.S. commodity producers with a good mix of moisture and sunshine this season, resulting in projected records for soybean production and corn yield. The big concern now is whether there is enough good weather left in the season to fully mature and gather the crop.
USDA's Sept. 11 Crop Report and World Agricultural Supply and Demand Estimates pegged corn production at 13 billion bushels, compared to 12.9 billion bushels estimated by analysts, and for soybeans, a record 3.25 billion bushels, on par with average estimates. Anticipated corn yield of 161.9 bushels per acre, if realized, would also be a record.
Much of the concern about the soybean and corn crops emanates from early-season growing and planting conditions that were marginal at best. “We got off to a late start, particularly in southern Illinois, southern Indiana, part of Ohio and northern Kentucky,” said Jim Bower, Bower Trading, speaking at a CME Group press briefing on the USDA reports.
“I still think there is somewhat of an issue as to whether those crops can make it to maturity. A lot of the corn in the northern tier of states is still not mature, particularly in North Dakota and South Dakota, part of Minnesota, Wisconsin and northern Iowa.”
Final soybean numbers could also depart significantly from current estimates as well, Bower says. “We have some mold problems, some disease problems, cold weather up north and one of the coldest summers in history. I think we all need to be a little cautious about projecting soybean yield until we take more off the combine.”
An early frost around the end of September could take the luster off projected large crops too, according to Bower. “There is the possibility of a cold air mass that is currently pooling to the north that could drift down into the southern Canadian Prairie and possibly into the southern tier of the United States. There is an element of concern, especially in the north, that for those late-planted soybeans, we must remain frost-free until the first week of October.”
Meanwhile, USDA estimates of the corn and soybean crops could very well continue to grow. “Big crops do typically get bigger and we expect that to happen, especially in corn,” said Don Roose, U.S. Commodities.
Demand is strong enough to offset the increases to some extent, according to USDA. “Demand is the big equalizer. According to USDA estimates, soybean production went up 46 million bushels and demand went up 36 million bushels. In corn, production went up 194 million bushels, but demand was up 150 million bushels,” Roose said.
“As the dollar continues to sink and the price continues to work lower, we've been able to buy demand, and that's what the government is saying (in the demand numbers). But while they're telling you that, they took the corn price down for the year, 5 cents on the low side and 15 cents on the high side. On soybeans, they took the price down 30 cents.”
Meanwhile, the world corn production estimate shrank (by 2 million metric tons) on weather problems in China and shifts to soybeans in South America.
“Between Paraguay, Uruguay, Brazil and Argentina, we're going to see an increase of between 23 million metric tons and 27 million metric tons in soybeans,” Bower said. “If bean prices hold, you're going to see more corn acres shift over to soybeans.”
Bower noted that producers had several opportunities during the year to make profitable pricing decisions for their crops. “For years, we've advised growers to avoid the trading decision as much as you possibly can. Make more of an investment decision and market your crops based on return on investment. When you are above the five-year average on your return on investment, you should be selling. If you thought that the crop might move higher, and many of us thought it could, then defend it with a call. Down at current levels, there are very few opportunities to be a seller unless you're selling into the hole.”
If soybean yield continues to grow, soybeans could drop below resistance levels of $9, $8.80 and $8.37,” Bower said. “But I'd really be surprised if we got that low. The demand factors on old crop soybeans transitioning into new crop are pretty strong. But again, we really don't know what the soybean yield is. With or without a frost, until you get those yields coming off the combine, you never know for sure.”