'Price Pressure To Continue' For Commodities

September 5, 2016 12:00 PM
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Soybeans are extremely impressive throughout the Corn Belt this year, and corn isn’t far behind. That’s the assessment of Alex Norton, director of commodity risk management at Beeson & Associates, Inc., in Pewee Valley, Ky., and a veteran participant on the Pro Farmer Midwest Crop Tour.

The firm works with food companies of all sizes, including high-profile customers such as Krispy Kreme, Hostess and Burger King, to provide commodities research so clients can make smart purchasing decisions.

In an email interview, Norton reflected on the Tour that ended two weeks ago and his expectations for what those findings say about the marketplace.

What were your expectations about the U.S. corn and soybean crop before the Tour started?

All reports heading into the tour were about how great the crop was. USDA's yields were record [large] in the August WASDE reports at 175.1 bu. per acre for corn and 48.9 bu. per acre for soybeans. I was on the western leg of the tour in 2014, when the previous yield record for corn was achieved, and the record (at the time, and since surpassed by 2015) soybean yield was also seen. That year, I noticed plenty of variability from field to field, but overall an excellent crop that was well developed with little stress. So heading into this year's tour, I was not expecting perfection in every field, but overall good yields and pod counts for corn and soybeans, respectively. I also was looking for discussions with other scouts to be more along the line of confirming USDA estimates (for the most part) rather than disputing them as too high.

Which leg of the Tour were you on, and what were some of your biggest takeaways about both crops?

This year, I was on the eastern leg of the tour. This started in Columbus, Ohio, moved through Indiana, Illinois, Iowa and into southern Minnesota. From my observations of the crops, corn was a little bit below my expectations (though not significantly), and soybeans exceeded expectations. With all my time in the corn fields, most were very good and clearly had a good chance of making great yields. However, there were not many fields that just blew me away by how amazing they were. The disappointing fields were still pretty good (all will make at least 100 bu. per acre), though. For soybeans, I saw a lot of pods that would fill well, and there is plenty of moisture to make those three- and even four-bean pods make really good yields.

From talking to other scouts, it seems like generally the same was felt. 175 is probably a bit too high for corn, but it will still be a record yield (especially since there is plenty of soil moisture and there was not much heat stress during August). For soybeans, look for an increase in yield.

From the perspective of the food companies for whom you consult, what were their biggest overarching questions about these crops? What will you be able to share with them as they plan their buying needs for the next year?

Everyone wants to know if the reality matches up with the USDA's first crack at estimating yields. Both the corn and soybean yields were really high, and the market's initial reaction after the August report's release was to actually rise, suggesting traders did not really believe the numbers. But weather has been really good for most corn- and soybean-growing areas, so our clients value our opinion regarding the crop. Are they really that good? Will USDA be revising its yield estimates in the coming reports? The takeaway for them is that corn will likely come down, but not more than a couple of bushels, and soybean production should increase in coming reports. These changes will then be felt on USDA balance sheets, which will drive the markets in the fall.

What are your expectations for commodity prices heading into harvest and the winter months given what you saw out in the field?

For corn, there is likely not much additional downside into the fall. We know the crop is big, and whether there is a bushel or two per acre lost or not, supplies are comfortable. Since that is known, there is likely not much else that would drive the market lower until some outside news comes into play. This could be South American planting progress, some unforeseen export change, etc. Soybeans have more potential downside, however. This market has been firmer versus corn, and demand is strong. Product (meal and oil) demand is also strong. The higher output would be more of a relief (if realized with a higher yield from USDA) to the soybean market, allowing for greater downside into the fourth quarter.

What other comments would you like to make?

The Pro Farmer Midwest Crop Tour is a great opportunity for all industries to get a firsthand look at the corn and soybean crops. For us, it provides some context to the USDA numbers that come across our desk each month and gives us a great way to communicate with our clients (the end users) about what is really going on in the fields. I think this year's tour really cements that supplies are bountiful in the U.S., and price pressure should continue in the months ahead. 

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