It's not what USDA did in its July 11 report that's important. It's what it didn't do — lower U.S. trend yields for soybeans and corn.
“When you cut to the chase on the report, USDA left the yield estimate unchanged,” said Don Roose, president and CEO with U.S. Commodities. “Current crop ratings say we're not sitting on those types of yields. So we're just going to watch and see how the weather unfolds.”
Roose forecasts a 134- to 135-bushel yield on corn and 38.5 bushels on soybeans, compared to USDA's estimate of 137 bushels and 39 bushels, respectively.
A lower yield could have a big impact on production, the analyst noted. “For each bushel that you drop on soybeans, we lose about 74 million bushels of production, and for each bushel of corn you drop, that's 69 billion bushels.”
Why does Roose think the yields will decline? “We know that the crop ratings are under a year ago on both corn and soybeans. We also know that historically from mid-July on, crop ratings continue to deteriorate. And when we start out sub par to other years, we usually see yields continue to ratchet down.”
Another factor that may be bullish for beans later on are old-crop ending stocks, now estimated at 255 million bushels. Many analysts believe that number may end up being a little smaller. “I think there's still an opportunity to see some new sales, and ending stocks may drift a little lower on the next report,” said Brian Scott, grain analyst with Allendale.
Are we picking up a theme in the government report? You bet, says Roose. “The government is being very conservative. When there is a weather market, they don't want to move numbers down too low and then have to move them up again.
“I think they've walked the tightrope very conservatively on the world numbers on China, Argentina, Canada and the United States. I think they'd rather err on being a little too large early on.”
Those lower production numbers are largely reflective of weather problems all around the world.
So when will nervousness over increased demand and weather begin affecting the market? “The end user probably doesn't want to get caught chasing the market up to higher levels, like he did in 1995/96,” Roose said. “Right now, we're in a big rally, but we're still cheap. The demand out of China is positive, and it's a long-term type of demand that we really need.
“We probably have put in our contract and seasonal lows,” he added. “We've had a market since January that's been in a contra-seasonal move. We should be moving lower this time of the year and we're moving higher. It's due to a number of reasons, a sloppy start here and globally.
“We have a market that has a strong solid base under it,” he said. “This is the first time since 1995/96 that we've seen the market in this position. We're losing production and increasing demand right in the face of changing the farm bill. Overall, the downside potential short-term is limited and quite possibly, long-term.”
USDA forecast winter wheat production at 1.974 billion bushels, up 3 percent from the June forecast. Ending stocks for wheat were estimated at 610 million bushels, down from the old crop estimate of 873 million bushels.
The agency forecast U.S. soybean ending stocks at 345 million bushels, compared to the old crop estimate of 255 million bushels. Corn ending stocks were estimated at 1.828 billion bushels, down from the old crop estimate of 2.053 billion bushels.