Can Corn and Soybean Prices Handle Possible Record National Yields?

01:25PM Aug 07, 2020
Corn Harvest 20
StoneX group released its survey-based yield estimates, producing a possible record-setting yield for both corn and soybeans. If USDA increases yield next week, analysts debate what will the market-reaction may be.
( Darrell Smith )

Favorable summer weather in much of the Corn Belt is producing high hopes for yields this year. While western Iowa remains dry, other portions of the Corn Belt received much needed summer rains, adding to the possibility of higher yield estimates on the horizon from USDA. Arlan Suderman of StoneX Group says StoneX just released yield survey results, showing the potential to see record-setting yields in the U.S. this year.

“This is a survey-based yield,” explains Suderman. “Last year, we just essentially pegged the final corn yield, and that's what we're looking for. We asked ‘what do you think the final corn yield will be? What do you think the soybean yield will be based on what you see today?’ Our results came out 182.4 bushels per acre for corn and  54.2 bushels per acre for soybeans.”

Suderman says even he was surprised by the soybean yield number the survey produced, since it's fairly early in the growing season for soybeans, but another set of data from a different Stone X group produced similar results.

“Our commodity weather group came out this week with a yield of 53.4, just below the survey estimate, with a range that extended bit above ours as a possibility,” says Suderman.

While the crop is setting up to possibly be a bin-buster, August is a key timeframe for soybeans. Suderman says that why it all comes down to August weather, even in determining how the corn crop finishes this year.

“How well we fill those pods and same thing for corn, how much depth the kernel do we get?” says Suderman. “How mild is it going to be? How much do we extend that grain fill period? That would suggest that the supply is getting bigger, and it’s growig faster than what demand is rising for our crops.”

Is $3 Corn the Future?

Potential record-setting yields now forecast by StoneX is also helping raise the bar on expectations nationwide. So, how did the market handle the big yield estimates? Dan O’Bryan of Top Third says you have to look back at what outside money is doing, and how their positions are trending. He says the funds went from a net short position, to covering those positions on the 40-cent rally earlier this summer. However, he says if USDA’s yield expectations in next week’s USDA August Crop Report comes in above expectations, funds could resort to those short positions again, driving down prices.

 “We took out the $3.30 support, the $3.22 price, and hanging right around there on Thursday,” says O’Bryan in talking about the December corn contract. “But if we take out that recent low, there is nothing to stop the funds from adding to this and pushing prices lower, maybe even looking at $3 at some point.”

He says the real issue is demand, which has been the concern since January. O’Bryan thinks with demand destruction from ethanol still taking place, and gasoline demand continuing to trend below last year’s levels, demand still the main paint point for corn prices.

“There's some work to do there,” he says. “Then, obviously, there's the China Phase One deal. There's a meeting a week from Saturday where they're going to have some discussions about how that's going. I don't know what's going to come out of that, except possibly some beneficial rhetoric for both sides to bring back to their country. So, it all depends on the demand here and the funds have plenty of ammunition to grind this lower if they want to.”

Will China Continue to Need U.S. Corn?

In preparation of that meeting, China is continuing to buy U.S. corn. With corn prices trending lower, Suderman says U.S. corn is a bargain buy at this point.

“Mathematically, it certainly makes sense for them to buy,” Suderman says. “The Chinese government can make money importing our corn at cheaper levels than what it is domestically, they can put it into their reserve, blend it with lower quality corn there, put it back out at auction and make money on it.”

Suderman says while the scenario sounds favorable for potential demand from China, he says you have to dig a little deeper to see why that idea may not come to fruition.

“When you look at their main goal, their main goal is to be self-sufficient, and to support the rural poor and to provide for their needs,” he says. “They don't necessarily have to buy our corn. So, while I do expect imports to increase over the coming year to maybe 9 million metric tons in the next year, they don't have to go higher than that, because right now all they're hurting is their industrial sector. And that's a relatively small usage.”

Suderman says when you look at China’s needs for livestock, especially hogs, hog prices in China are still at profitable levels, netting on average $350 per hog. He says that’s despite higher domestic corn prices.

“They still have plenty of incentive to produce as much pork as they possibly can, even at these corn prices,” says Suderman. “Corn prices are not contributing to food inflation. African swine fever is. But keeping prices high helps their rural poor, and I think the focus is going to be on trying to close the gap of 25 to 30 million metric tons per year that they consume more than they produce on increasing production. I think they're going to have trouble doing that. There's some reasons for that to be the case. But I think that's what they're going to try first before they really expand imports dramatically. “

USFR 080720 - RT1