Dan Hueber understands all the reasons why the USDA cut its corn production forecast in November’s World Agricultural Supply and Demand Estimate (WASDE) reports.
“It’s not hard to rationalize it,” says Hueber of The Hueber Report. “The harvest is moving northward, lighter test weights are coming in, and they are seeing good—but not exceptional—yields. It’s still record-breaking. It’s just not quite as over-the-top as some of us expected.”
While many traders were expecting corn numbers like 14.5 billion bushels of production and an average yield of 175 bushels per acre, the USDA caught them off-guard today. The agency trimmed its production estimate to 14.407 billion bushels, with a yield of 175 bushels per acre.
As Jerry Gulke of the Gulke Group said Friday, “while the traders are thinking it’s going to be a humdrum report, it pays to expect the unexpected.”
Still, the news had minimal impact on corn prices, which settled at $3.6925 for December futures in the midafternoon. “We’re not covering any new ground here,” said Joe Vaclavik, president of Standard Grain in Chicago. “This is nothing more than a headline.”
What could be more than just a headline is the situation in soybeans. The USDA today raised its forecast to a record-breaking bean harvest of 3.958 billion bushels with a yield of 47.5 bushels per acre, but demand remains relatively strong, despite those big numbers. Add the soybean crop’s lower cost of production and higher prices, and you have a recipe for farmers switching from corn to beans.
And grain marketers are watching that situation carefully. “There’s a case to be made for much larger bean acres,” says Vaclavik. “The prices aren’t high enough for average farmers to make money in corn, and bankers and lenders don’t’ like lending money for crops that don’t make money.”
Will the growing demand for soybeans match up with what farmers in the U.S. and elsewhere can produce? “It’s tricky,” Vaclavik admits.
Hueber agrees. “In the weekly export numbers, 70 percent to 80 percent of the soybeans are going to China. Those orders are very easy to get cancelled, and if South America comes out with a strong crop [of soybeans], you could see those [export] numbers deteriorate domestically,” he says.
That could be a problem if as many farmers switch to beans in 2015 as some market watchers think. “If you have a 450 million-bushel carryover in soybeans, and you add 2 million acres of beans, all you need is an average crop and we’ll have beans coming out of our ears,” Hueber says.