USDA reports seem to have become akin to the preparations for a big party. There is lots of anticipation and excitement leading up to the date and once the time has arrived it is met with much hoopla but just that quick, it is over and someone is left to clean up the mess. As it turns out, there really was not too much mess to clean up from this one as there were no major shockers and both the bulls and the bears came away with a little something to crow about.
As expected, the wheat yield was boosted slightly due to better performing spring crops and is now estimated to be 43.9 b/p/a, up 8/10th from July. This increased production by 38 million bushels to 2.030 billion, which was nearly offset by a boost of 35 million in usage. Simple math says carryout was increased an insignificant 3 million bushels or .45% to 663 million. In the world numbers, Chinese production was bumped up 2 MMT, Ukraine 1 MMT and Russia 6 MMT but this has been talked about for weeks so not really a major piece of news. The net result though after increased usage was to see world ending stock rise 3.54 MMT or 1.87% to 192.96 MMT. This would be the largest since 2011/12.
Considering there was really little change that was unexpected in these numbers, I was a little disappointed in the action post report. Prices did not press into new lows for the move but we did head down for a pretty good test of the existing lows. We have bounced a bit overnight and I suspect we have to begin the rebuilding process at this level once again and could move sideways for a few weeks before considering a rebound again.
Undeniably the corn market received the most "positive" news in the report yesterday but using that noun is really an oxymoron. The numbers were not as negative as expected but by no means can we really say they were positive either.
As we reported pre-report, the trade was looking for a yield of around 170 b/p/a and total production around 14.239 billion and what we heard instead was a yield of 167.4 and production of 14.032 billion. Certainly lower than the guesses, but each would still set new records. Many, myself included have commented that large crops tend to get larger and I suspect this one will not buck the trend. The USDA did report a record ear count for this figure but not a record ear weight, evidently using statistical averages, so there is room for that yield number to climb above the 170 level on future reports if weather allows for a good finish to the crop.
I believe the real positive surprise came via the usage numbers as the government first boosted current crop year usage by 65 million. Of this, 45 million was in the ethanol production, which is very understandable and the other 20 million in exports, which is not so understandable. So, immediately we had eaten up 38% of the increase in production due to the higher yield. 2014/15 usage was then boosted 100 million bushels so the net result was we used 96% of the production boost and carryout was increased an insignificant 7 million bushels.
Over in the world estimates, between the increase in the US and higher production in the EU, total world production was bumped up 4.43 MMT but after pushing usage higher as well the ending stocks were cut .23 MMT to 187.82 MMT. Once again we need to keep the changes in perspective as that is still a record ending stocks figure, eclipsing the previous high water mark set last year by 16.73 MMT and marks the 4th year in a row of rising stocks.
Corn did press briefly into new lows after the report but bounced higher from there, which is very understandable. Theoretically we have factored in larger production and inventories and they were not confirmed. There is by no means any guarantee that they have to grow larger but without a weather issue moving forward, I continue to believe they will but this report could keep the seller at bay until we know more down the road. One tidbit to keep an eye on though is that with the lower low and reversal posted yesterday, we need to be on the watch for where December corn finishes this week. Last week’s high was not that far overhead at 3.74 ¾ and if for some reason we reach up and close above that level, the technical side of the market could be telling us the run of the bear could be drawing to a close.
While not "in your face" bearish as the number were right on the trade estimates; there was nothing for the bull in the bean estimates. For the old crop, the USDA made a few adjustments, cutting imports 5 million, boosting exports 20 million and boosting residual to a huge negative 94 million with the net result being an unchanged ending stocks. It would seem that the crop last year has still been understated to justify that large a negative residual. Regardless, with no change in the carry-in and a boost of 2/10th of a bushel in yield, total supply of beans increased 16 million bushels as did the projected carryout to 430 million. In big years bean crops also tend to move higher after the August report. I have no reason to question that, particularly with what now appears to be a very favorable weather forecast, but you already have to be amazed with the combination of big acreage and big yield this year. This is a record planted acreage by 7.3 million acres and would be a record yield by 1.4 b/p/a or 3%. An additional interesting side note, I was on Market Rally Radio with Chip Flory yesterday and he pointed out that this year we will harvest more acres of beans, 84.1 than corn, 83.8. I believe this has to be a first.
Over on the world numbers we found very few changes. Even with the increase in the US, total world production was lower .1 MMT but the world ending stocks increased .32 MMT. Nothing major but once again, the largest ever and this by a margin of 13.9 MMT.
November beans did poke into a new lows for the year yesterday but were able to bounce back enough to close above that watermark. That said, without a weather issues as we finish out this crop, I have to imagine that we will eventually see a 9 in front of prices as we move out into harvest.