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Market Commentary for 8/13/21
Corn Outlook
On Thursday, the USDA decreased the estimated national corn yield more than the trade was expecting. In the last 15 years, only 4 had estimated final yields higher in the January report compared to August’s. However, none of those years had weather conditions like this year. Some in the trade still expect yield estimates to continue falling through harvest. However, even at current levels it is positive for prices long-term.
The USDA decreased feed and export demand to help offset the lower yield. However, corn demand should remain strong through the next marketing year because both Brazil’s yield estimate and global wheat stocks were scaled back.
Brazil’s yield decrease means corn exports normally from the Southern Hemisphere may have to be shifted to the US. Plus, the tighter wheat stocks will likely mean a shift in feed rations back to corn due to corn’s comparatively lower price. So, while the USDA did drop the feed demand this month, overall demand could ultimately increase as we move forward in the marketing year.
With harvest approaching and limited market carry, there is less incentive for farmers to pay commercial storage fees to store their corn. With cash prices currently above $5 for harvest delivery nearly everywhere, it’s likely farmers will sell some of their production at harvest. This could lead to a price pullback in the fall.
Obviously, something unforeseen like the African Swine Fever (ASF) sweeping through the US or a major relapse of the disease in China could still hurt prices. And, of course, better than expected yields as we move into harvest could hinder a rally too. Still, the overall reduced corn yields and tight wheat stocks globally suggest prices in the long-term have upside potential.
Bean Outlook
The August USDA report was mostly neutral for beans. The USDA lowered old crop export and crush demand. This wasn’t a huge surprise, because basis values and the futures inverse had been decreasing throughout the US for weeks suggesting that demand had softened. Also, while expected yields decreased some, August weather could still have a big effect on bean production in either direction.
The new season for bean exports began last week. From now through the end of winter the US is the dominant bean exporter in the world, which should keep a floor under prices. Long-term concerns will now be how big South America’s acre expansion is next fall. Also, La Nina could return with dry weather throughout South America impacting both corn and bean prices. Currently there is 50% chance this will happen.
Like corn, harvest may put pressure on prices through the end of October as some farmers may sell beans in the teens straight off the combine.
Looking Forward
The market looks positive for corn and bean prices for the next 12 months. Higher wheat prices could mean more wheat acres planted at the expense of corn or beans next year, which may increase prices. Some type of demand rationing, or supply spike may be needed to push prices down significantly.
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Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
