It was another strong day at the CBOT with December corn closing 17 cents higher at $4.72 ¼, November beans up 26 ½ at $12.65 ½, and December wheat up 6 ¾ cents at $6.49 ½. The strength continues amid the dryness concerns in the Midwest, strong export sales, and a friendly FSA acreage report this morning.
Early this morning the FSA released their August acreage report. They have total preventive plant corn acres reported at 3.411 million and 1.618 million for soybeans. Total prevent plant is pegged at 7.710 million. They also had total corn acres of only 88.771 million. This is obviously well below the current USDA estimate of 97.4 million acres. Looking back to last year, the August FSA total corn acreage was 92.950 million and the total reported acreage on the WASDE ended up being 97.2 million. Clearly there is a margin of error on this report compared to the WASDE it is just unclear how much of a margin we should attribute to this when trying to predict final corn acreage. Either way the market responded favorably to these numbers and we can’t discount that.
While the FSA numbers were supportive so were the extremely strong export sales this morning. Corn sales were reported -59,100 for old but 836,100 MTs for new. This was above the highest guess by over 200,000 MTs. Soybean sales were reported at 1.893 million, almost double what they were expecting! With the stronger demand reported, a slightly bullish FSA acreage report, and a drier forecast, prices have been able to break out of their liquidation phase. December corn is now above its recent trendline resistance.
Before we start convincing ourselves that the lows are in, let’s take another look at the August WASDE corn yield estimate again. We briefly discussed it in our post WASDE letter on Monday. NASS is using the 5-year ear weight average to derive their expected yield. In this 5 year period, we have had the 2 lowest ear-weights out of the last 9 years. If we were to remove just the lowest and the highest ear-weight years (2004 and 2012), and take the average of those years in between, the calculation would result in a reported ear-weight increase of 4.4% from what they are using now, or more importantly a yield of about 161.2 bushels per acre. The point is they could be very far off from the final yield unless for some reason weather turns and we finish the year poor.
We are advising our customers to stay well hedged but allow for some upside by using a combination of cash sales and options. For a free trial of our market letter and breakdown of hedge recommendations please email [email protected]. Have a great weekend!