Corn stole the show in USDA’s October crop report with the government making big changes on the 2015-2016 carryout number, Jerry Gulke, president of the Gulke Group, said on Friday’s broadcast of Weekend Market Report on Farm Journal Radio.
“It was exciting to watch the reaction of the marketplace,” Gulke said of corn’s rally following the release of USDA report Friday morning. “I think we caught a lot of people leaning the wrong way, obviously, because at the end of the day, corn was up 12 to 13 [cents per bushel].”
USDA’s projection on corn ending stocks for the current marketing year is now 1.592 billion bushels, down from 1.713 billion estimated in the August report.
Causing the shrink in ending stocks was USDA’s downward revision of this year’s corn yield estimate and a drop in beginning stocks.
USDA lowered their estimate of the 2015-2016 corn yield estimate moderately to 167.5 bu./acre, down from their August estimate of 168.8 bu./acre while their calculation on total crop size shrank to 13.585 billion bushels, down 40 million from their previous estimate.
While a reduction in corn yield was widely anticipated in the market, USDA also shrank carryout stocks for both corn and soybeans in the 2014-15 marketing year, Gulke noted.
“They took another look back at last year - the marketing year just ended. ‘14-‘15 ended on Aug 30 – and they actually lowered the stocks,” Gulke said, pointing out that the combination of the 40 million-bushel reduction in 2015-16 beginning stocks and the 101 million-bushel shrink in production caused significant tightening in the 2015-2016 corn balance sheet.
Contributing to the tighter corn balance sheet this month was USDA holding the demand side of the balance sheet relatively unchanged with no reductions of exports. Total domestic demand decreased only slightly by 20 million bushels to 11.905 billion bushels.
“We got kind of the best of all worlds. It tells us that demand is continuing to stay firm, and maybe getting a little bit better, and maybe the world isn’t in so much trouble after all, and the China syndrome is a flash in the pan or not as bad as it sounds,” Gulke said.
Soybean ending stocks for 2015-16, meanwhile, fell to 450 million bushels, down 20 million from the August report.
Focus on October Report
Even bigger changes on the corn yield estimate likely are in the offing for the October report, Gulke argued, as more harvest data is gathered in the weeks ahead. A shrink in harvested acreage also is possible, he said.
“I think in the end we’ve got probably another 2 bushel-an-acre drop in yield coming. Maybe another 500 to 750 thousand acres in corn less harvested acres when they get all done,” Gulke noted, adding that while the acreage figure was unchanged in this report, more will be known when FSA acreage data is reported.
The combination of declining yield and a shrink in acreage as demand holds strong, he says, portends a more bullish outlook in future reports. The real focus in the near term, he points out, will remain on yield.
“We lowered the production a little bit. How much more will we lower it when we get more information out of the field?” Gulke asks. “The good news is we’re keeping the bears guessing, and the best thing to do is get out of the way.”