Grain, cotton and hog markets ended lower on Friday with cattle higher.
Corn Falls Despite Yield Cut
December corn futures settled 3 1/2 cents lower on Friday despite a 2.2 bu. per acre cut to corn yield by USDA to 178.5 bu.
Dan Basse, president of Ag Resource Company, says the yield figure was very close to the trade guess and largely priced into the market.
“It was. I mean, if you think about the corn market going back to the middle of August, we’ve had a big run to the upside here,” he says.
However, he expects the bull market to continue into the end of the or longer as the balance sheets continue to tighten.
Stocks to Use Below 10%
Basse says with the yield cut production is at 15.8 billion bu. which is 1.5 billion bu. below last year.
It comes in the face of record demand of 16.2 billion bu. so USDA lowered ending stocks down to 1.567 billion bu. “And importantly, we’re below that 10% stocks to use ratio. And that opens the upside,” he says.
This is because if yield falls farther or there is any increase in demand the market will have to see prices rally to start the rationing process.
How High Does That Take Corn Prices?
So with a sub-10% stocks to use ratio what price level should corn be at?
Basse thinks corn is fairly priced at $5.25 to $5.50 but he thinks corn yield could drop to 176 bu. per acre, which is another 2.5 bu. by the final.
“There’s a very strong historical that ear numbers drop from here through November. So if that’s indeed the case, the ear number drop will give us a lower yield,” he says.
Those lower ear counts are function of reduce nitrogen use. Plus, the cold and wet weather in late May through June, followed by extreme heat in July.
“As you look backwards, we haven’t had a July average temperature that was two degrees above normal, we didn’t do very well on corn yields. And this year seems to be that case,” he adds.
He also thinks the corn market has failed to price in the Black Sea problems. “So, you know, USDA and its export estimates in both corn and wheat has no Black Sea in there in terms of the problems and the declines due to the war. We’ll see how that all plays out.”
Global Corn Stocks to Use at 12 Year Low
Global corn stocks continued to tighten with a 2.56 million metric ton (MMT) cut to 272.1 MMT. That number could be lowered further in the future.
“Yeah, we expect that stock number, production number globally to shrink with the U.S. crop. We think the Ukrainian crop is also a little lower. They put the European corn crop at 50 million metric tons. There’s still another two to three million metric tons that come out of
there. So increasingly, we think that the world crop will edge down,” he explains.
Still he thinks USDA will be slow to make these cuts. “They need to see some actual harvest yield data both in the U.S. and the EU before they make those final adjustments,” he says.
Corn Gets Pulled Down by Soybeans and Wheat
Despite the bullish case for corn the market ended lower getting pulled down with wheat and especially the large losses in soybeans.
“It was a mentality that we rallied up after the report. We checked the old highs. Corn made it up to the old highs. And then we just couldn’t keep it going because of the weakness in beans and wheat. So there was that mentality heading into the weekend that the market’s relatively long or a record long in corn that some people wanted to take some risk off the table,” he says.
However, Basse expects the world to come back on Sunday night and buy the break.
USDA Raises Soybean Yield
November soybeans were down 35 3/4 cents on the day to close at $12.96 1/2 as the bulls did not get fed what they wanted from the report.
The trade had expected a slight cut to soybean yield, but instead USDA raised it .1 bu. per acre to 52.8 bu. which was mildly disappointing and the 4.535 billion bu. production number was a record.
And there is a risk soybean yield gets bigger going forward.
“There is that risk that we pick up a few tenths of a bushel and if someone wanted to argue strongly about a yield of 53 or even slightly above that, a new record U.S. yield, it’s not impossible. And I say that because pod numbers historically increase from September through November. So look for soybean yields to nudge slightly higher. USDA did find a few extra acres today, which also added a little bit to the bearishness. But 52.5 to 53.3 bushel an acre yield seems to be the range we’re now dealing with,” he says.
Soybeans Fall Hard
Soybeans were also down hard due to profit taking as Basse says the market had just traded to new contract highs on Thursday and was due for a break.
“Well, the market’s done an awful lot. I mean. As we closed out last week, we were back up over that $13.25 nearby futures and then the USDA report came out with a record large U.S. soybean crop, We needed to correct here and that’s what really happened as we went home on Friday.”
Soybean Highs In for Now?
Going forward, he thinks the soybean market is going to be about Chinese pricing but also crush margins and whether the market will exceed USDA’s record crush figure.
After that the focus will turn to the South American crop, which is encountering some dryness. “They started planting, but the forecast has gone somewhat drier. So we’ll watch it very carefully as we get into the month of October, if farmers down there can get in the fields normally,” he says.
Higher Exports, Tighter Ending Stocks
Still the bulls can point to strong demand with exports being raised by 25 million bu. in the report which tightened ending stocks down 10 million bushels to 310 million bushels.
This is largely a result of China purchases and USDA is not accounting for the full 25 million metric tons of commitments.
Basse says as yield improve, so will export demand. He is figuring soybean exports at 1.735 billion bu. which is above USDA’s 1.69 billion.
“So I’m still up another 40 million, 40 or 50 million bushels. So with that in mind, I do think ending stocks can still fall below 240 million bushels. And so, you know, the upside in soybeans will be there. But it’s again, I think it’s a process when you get up to this $13.25 or $13.50 range. It’s hard to go to $14 unless you have just a decidedly bullish end stock figure of 225 million bushels or lower.”
Wheat Balance Sheets See Only Slight Change
Wheat futures were also lower on Friday from 16 to 20 cents as the September WASDE was a quiet one for wheat.
U.S. ending stocks were left unchanged at 717 million bu. USDA punted as the agency will make adjustments in the Small Grain Summary at the end of September.
World ending stocks were raised by 3 MMT to 276.3 MMT. While that is down historically it does not adequately reflect the export problems in the Black Sea according to Basse.
“We are still down 40 million metric tons in the primary exporter position. The wheat market will now start to key off the duration of the war in the Black Sea. I mean, we’re only seeing exports out of Ukraine at 40% of normal. Russia’s down to about 37% of normal. So when you think about the cutbacks of maybe 15 million metric tons by the end of the year, it’s the market reshuffling that demand to other destinations. So, that is key,” he explains.
Its is unclear which country will pick up the the business, Argentina, Australia, Canada or the United States.
Still he says its hard to get bearish wheat with the persistence of the Black Sea war and the market is not giving it the respect it deserves.
Inflationary Buying
Basse also cautions farmers that the pullbacks are likely to be bought by funds because of the fear of inflation.
“I’m talking to customers I haven’t spoken to in five or six years going back to 2020. And these are the big, large investment funds that see commodities as a place to park at least a percentage of their money. And they’re looking for diversification away from the equity market. So inflation, rising energy prices, a falling U.S. dollar, all that kind of plays into a mindset of being long stuff,” he explains.
He says the grains are one place they want to be long especially with the lingering super El Nino. So he thinks funds will defend their longs until at least the first quarter but maybe even into the second quarter of 2027.
“So that will also be an underpinning to the grain markets as we think about prices heading into the end of the year,” he says.
China Preparation
Basse says there are also funds that are keen to owning commodities ahead of U.S. China Summit on Sept. 24. and he believes that is when the China will drop the 10% duties on U.S. grain and soybean imports.
“And when that happens, that means that that prorated $17 billion, I think $14 billion for this year, can be acted upon. And I think China needs to buy grains, corn and wheat, if that is indeed what’s going to happen,” he adds.
