USDA defied expectations Wednesday with a bearish report that sent markets reeling and made big crops even bigger.
USDA put corn and soybean yield and production at all-time highs, with a record corn yield of 175.3 bu. per acre and a record soybean yield of 52.5 bushels per acre.
The report caught analysts off-guard and markets plunged following its release. CBOT November soybeans dropped 24 cents in early trading and closed down 19 3/5 cents at $9.82. CBOT December corn fell 13 2/5 cents, closing at $3.40 2/5.
The outcome of the U.S. presidential election did not appear to influence the markets’ reaction, analysts say, noting they did not move much before the report was issued. A stronger dollar also bore down on markets, they say.
“I don’t think anyone had this figured in. The trade was surprised with the increase to a new all-time high,” says Rich Nelson, chief strategist for Allendale, in McHenry, Ill.
The bearish report comes at a bearish time of year, with USDA looking at numbers as harvest results come in, Nelson says.
“This is accurate; these numbers can’t be discounted. You can’t argue against these numbers anymore,” he says, adding that the market will now be testing September lows in prices.
“The big surprise was soybeans," says Nelson, with USDA lowering domestic crush at the same time that it increased production estimates.
With the USDA raising the crop size and lowering domestic use, it’s a clear sign to the market that domestic use is not as strong as previously thought, and it adds to U.S. supply, Nelson says.
For other analysts, the record-high corn yield estimate was the report’s biggest surprise.
“The client producers I’m talking to in Ohio and Iowa said they didn’t come close to beating 2015 yields,” says Mike Zuzolo, president of Global Commodity Analytics. In Atchison, Kan. “I was not expecting corn to have a big carryover."
“The problem with soybeans, is it didn’t get the expected demand increase. In corn, it didn’t get demand increase in feed and exports,” Zuzolo says.
However, Zuzolo says the larger-than-expected soybean carryover “was the worst of the three (crops),” with South American production gearing up.
Another analyst thought corn yield was the report’s biggest surprise, even though it trended with higher local yields.
“I am on a farm in southeast North Dakota and I can confirm, the yield is spectacular,” says DuWayne Bosse, of Bolt Marketing in Britton, S.D.
Some analysts predicted market fundamentals would not stop lower market swings.
“The market will be very highly technical. No one will stand in front of algorithm trades,” Zuzolo cautions.
Although there is still potential for weather woes in South America to move markets, the almost 500 million bushels of carryover in beans puts algorithmic trading more in control, he says.
“If corn slips below $3.40, you could see erosion of 20 cents whether it makes sense fundamentally," he says.
Likewise, if November soybeans fall below $9.51, it could go down another 40 cents easily, Zuzolo says.
So what should farmers do? They should store their corn on the farm and sell it on a cash basis, or save it to sell later, according to analysts. Producers also should buy corn and soybean hedges, they recommend.
“Farmers can still look to capture the carry in the market by selling on- farm stored bushels out to next spring or summer,” Bosse says. “Then if the market does indeed drop further, they can buy these bushels back."
When it comes to soybeans, farmers have to “make a determination,” Zuzolo says. “If [producers] store soybeans, they are banking on the idea of a South American weather problem, a tall order to fill,” he says.
Moving forward, the market’s main focus will be on South American weather and export demand for both corn and soybeans, notes Larry Shonkwiler, senior commodity analyst at Advance Trading in Bloomington, Ill.