Disecting USDA's October Report

November 9, 2017 05:03 AM
Soybeans in Cart

Finally, October’s USDA report had a price-positive impact, at least on soybeans. The increase in acres was not a surprise to this writer, as our February client survey reflected a lot more acres.

In March, NASS confirmed in its Planting Intentions report an incentive to plant soybeans. But it took them way too long to verify that until the official dump of FSA Form 578 farmer acreage information. One has to wonder how much potential gross corn revenue farmers lost waiting until October to reveal a 500,000-acre reduction. Furthermore, NASS seemingly ignored weekly crop-rating reports regarding monthly yield estimates.

Market Strategy November

Doubtful Data. NASS has voiced its disappointment in farmer responses to county row-crop surveys. They fell from 62.8% in 2011 to 56.4% in 2016.

Farmers are getting bigger and busier, and they are more reluctant to respond, making survey results of questionable usefulness. In 2007, our Gulke Group survey predicted a huge increase in corn acres. On the day of USDA’s October report that year, I fielded a question at a World Outlook Board meeting in Washington, D.C.: How did Gulke Group do with less than 10 employees what NASS could not with 3,500?

I responded that farmers are independent and unlikely to give their personal, accurate information to a government agency.

This year’s October report for soybeans projects record acreage and production, which will be up nearly 200 million bushels from this past year. For years, I have written that there is not a demand problem in agriculture. It’s just that we have been growing a little too much.

In spite of a huge crop in South America last year, a record soybean crop in the U.S. and gains in Canada, the supply and demand table above shows continued good production is important for soybeans.

Looking Ahead. Popular belief, in spite of economics, is that 2018 soybeans will fall between 3 million and 4 million acres from this year. Yet the table suggests 3 million acres less will keep carryout tight in 2018/19 and 100 million bushels less than in 2017/18. Brazil’s mega crop is expected to be reduced 4 million to 5 metric tons (MMT) but to stay above 100 MMT. La Niña reappearance has markets nervous, making the South American outlook concerning. 

USDA has corn carryout at 2.34 billion bushels in a move to lower harvested acres and raise yield that raised production 100 million bushels. With exports projected to be down 450 million bushels from 2016/17, there is room to improve. Without recapturing demand, corn can lose 3 million to 4 million acres more and not see carryover below that of 2015/16.

Next year’s crop-planting mix needs to be in producers’ thoughts. With a carry of over 40¢ in corn to deliver in fall 2018, on-farm storage will pay, but it requires farmers to have a flexible marketing plan. The soybean market wants to ensure acreage won’t drop much. Gone is the idea that farmers love to plant corn. Economics are coming to a head. We’ve kicked the can down the road, perhaps for the last time.


Jerry Gulke farms in Illinois and North Dakota and is president of Gulke Group Inc., a market advisory firm with offices at the Chicago Board of Trade. For information, call (707) 365-0601. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades.

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