Rest of the Story: Yield Outlooks & Points to Ponder

August 21, 2018 04:29 PM
In this week's "The Rest of the Story," Jerry Gulke offers several points to ponder in the hopes of triggering some individual thinking as yield outlooks come pouring in and eco-political market movers remain.

The state by state yields as estimated in the August USDA acreage/yield assessments shown in last week’s column did not prompt any response so I will assume readers agreed totally with the USDA? However as weather and crop ratings change, I normally develop some observations that could change the yield outlook for both corn and soybeans and thus my personal outlook for total production. Perhaps yours will be affected as well?

SOYBEANS:  There are a couple of questionable areas.  Missouri with 5.730 mil-ac and North Dakota with 6.550 mil-ac have both been plagued by hot/dry conditions. USDA took MO yield down to 45 bu yield from 49 last year, as deteriorating conditions were obvious in early August.  ND, however, looked great the end of July but had little or no rain the first three weeks of August. The August yield had them at 38 bu/ac for 2018 versus 34 bushels last year.  Recent rains missed the northwest quarter of ND, but did help the rest of the state where majority of soybeans and corn for that matter are grown, especially in fertile Red River Valley.  Assuming that MO has gone downhill another 3 bu/ac and ND will yield no better than last year, further combined production losses of about 17 mil-bu in MO and 27 mil-bu would be 44 mil-bu, a mere pittance compared to the 785 mb carryover projected.  In fact, we could lose 50% of the whole whole of ND and only cut carryover by 124 mil-bu.  Given the recent rains across a large part of the corn/soy growing region, odds are yield increases a bu /ac in IL, IA and IN for an increase of 27 mil-bu, offsetting the losses in ND.  It is entirely possible NASS will increase soybean yield another one bushel minimum unless crop ratings fall off a cliff.  

The impossible task of getting rid of the large ending stocks is daunting.  There are still those who believe once China comes back, the stocks will disappear.  That seems highly unlikely.  By the end of November it may be too late to salvage lost business and still deal with a 3-5% increase in S American acres for 2019.   Media analysts are void of even discussing anything but a return to normal as it is unthinkable to believe 785 mil-bu let alone 1.0 bil-bu carryout for next year.

CORN:   The question often asked on TV/Radio is why corn is so cheap given the potential for tight stocks.  My best observations now are that the better question is “what is it that we don’t know, that we don’t know, that is influencing markets”?  Perhaps the following will trigger some individual thinking on your part.

  1. Last September the USDA was predicting a drop in corn exports of about 345 mil-bu from the previous year.
  2. About 11 months ago I was discussing in various media the opportunity for corn prices to rally significantly in early 2018 and that was in process up to May and the threat of tariffs began (see chart below).
  3. Currently this year traders/advisors are fixated on low global stocks including U.S. stocks. There isn’t an analyst interviewed that doesn’t believe corn has huge potential
  4. The difference this year may be that corn thus far won’t have to compete with $11 soybean prices and bid for acres.
  5.  Last year USDA was predicting a reduction of 345 mil-bu in exports for 2017/18 --- exports actually increased surpassing last year.  USDA and research firms underestimated again.
  6.  This year USDA has similar exports already built into the S/D table --- traders are extrapolating demand into the next year 2018/19 similar to what they did in soybeans years previous and continue to do so for the year ahead refusing to believe/understand that China’s total demand could drop 5-10 million metric tonnes or more.
  7. Even with the mega demand, we’ll have adequate stocks to carry us to 2019 fall harvest of 4-5-6 mil-ac more are about 700—1.0 mil-bu more production---in a backdrop of more wheat globally in 2019/20, some of which will be a feed grain.

The bottom line to the rest of the story is the potential to see soybeans stocks building globally while China is reducing their demand or at very least, their dependence on the U.S. You can be sure that others are contemplating this very possibility but you won’t hear or read of it in the major media nor will large corporations discuss it. There is hope yet that if a “deal” is announced that it will put a bottom in both corn and soybean prices and anything less is unthinkable. The details of the tariff offset program (part of the $12 billion allocation) is due out this week.   It seems to me like resurrecting the old LDP program would suffice and with local prices determining the daily LDP, it would take into account varying basis from a huge $1.50 in N Plains to a positive basis in the South. I am concerned of getting screwed either by the details of the program or by an incentive to artificially widen basis by buyers and let the taxpayer pay for it while giving an opportunity for exporters and crushers to buy cheap. Everyone is expecting U.S. prices to go higher, but with an alternate source for China it means the days of a wide positive basis is over for S America. But I am speculating similar to what I did when I first began this column warning of the impending debacle in soybeans. Hang on, things could get really interesting!

CHARTS:  The 30-year chart below shows a mountain of information all the way from beginning it all with the Bush energy program that created/mandated the need for 5.0 bil-bu of corn for ethanol to a bull soybean market of the typical three wave move that incentivized anyone who could grow $14 soybeans to do so including the CRP land that set idle for years. The rest is history to the point where price is now testing the VERY important $9 level. Should we find out that China has found a longer term way to lower protein needs or become more efficient at a time the U.S. may carry out historically high ending stocks, who will have won in the long run? The eternal optimist will say we are at historical support---the realistic, pro-active thinker will be concerned that may be a change in the way grain flows from producer to user and that a whole new paradigm shift in agriculture lies ahead. Food for thought and certainly important to our economic well-being, wholly dependent on the eco-political global situation with our financials dictated by two super powers with egos!



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