After the USDA released its September 11 World Agricultural Supply and Demand Estimates report, with a record forecast of 3.91 billion bushels of soybeans and 14.395 billion bushels of corn, market watchers shook their heads.
"The bean picture took a turn for the worse today," said Daniel Huber of the Huber Report, who likened the current market situation with soybeans to the disaster movie "A Perfect Storm." "You’ve got record yields in corn, record yields in beans, and you’ve got record acreage in soybeans," he said. "How could [the trend] be anything but bearish?"
As Huber looks forward, with South American farmers expected to start planting their significant soybean crops in the near future, he sounded even less optimistic that bean prices could rally anytime soon. "About the only salvation for the bean market is a weather event in South America," he said.
Corn promises a similarly strong harvest, with the USDA bumping yields from 167.4 in August to 171.7 bu. per acre today, closer than expected to the market’s own forecast for this year’s crop yields. "You gotta wonder whether USDA influences the traders or the traders influence the USDA, because they are getting pretty close with these yields," said Jerry Gulke, president of The Gulke Group in Chicago.
While everyone is planning for a big corn crop this year, there are some questions about the level of demand. With the economy slowing in Europe and China, Huber wonders whether export demand will really be as high as the government expects. He, like others, is also awaiting more specifics from the EPA on its Renewable Fuel Standards, and how the agency will adjust—if at all—the amount of ethanol required. He’s also watching oil production and prices, which influences the economics involved in ethanol production. "If oil production pushes the price of crude down, then the ethanol picture gets a little cloudier," Huber observed.
The numbers suggest farmers need to brace themselves for some tough prices in corn and beans. As Marc Schober of Farmland Forecast said today: "Analysts continue to be bearish on grain prices in the short term as expectations for both production and carryover volumes domestically and globally remain elevated, leaving little room for price relief. The record-breaking production estimates have also raised concern over the logistical issues that it will cause. Rail lines have still not recovered from the back up that occurred last year, and the mountain of grain that is about to be harvested off the Corn Belt will only increase the strain created by oil companies competing for rail space."
Huber would agree with that assessment."It’s hard to find anything that offers a glimmer of hope" in today’s report, he said. "Things are going to get worse before they get better."
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