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Market Commentary for 8/13/22
USDA Report Highlights
Corn
The latest USDA report decreased the average national yield from 177 to 175.4, slightly below the average analysts’ expectations of 176. To offset the supply drop, the USDA also lowered corn demand in every category between both marketing years. While these numbers seem bullish long term, precipitation over the next week throughout the corn belt, as kernel fill finishes, will be a big factor. With what we know today, average yield potential is likely limited to a 174 to 176 range.
The follow chart analyzes potential carryout scenarios based on yield variances. This illustrates carryout may be tighter than last year.
The supply estimates should keep a floor value under corn futures moving forward, while demand will likely contribute to price potential the rest of the year.
Europe continues to have one of the worst droughts in history. Corn yields are currently down 10%, with estimates it could fall another 10% over the next 2 months. This could mean 500 million fewer corn bushels globally than was expected just 6 weeks ago.
Due to better-than-expected weather the last 2 months, the USDA increased Ukrainian production slightly. However, it is uncertain if the grain can be moved after harvest. Despite the new vessel export agreement, movement remains extremely slow, and the logistics to sustain export capacity from the ports is still unclear.
World corn carryout is estimated to be lower next year, which could suggest higher prices moving forward.
Beans
There were two surprises in the USDA report for beans. First, it lowered planted acres due to the resurvey in the Dakotas. These lost acres were on fields that usually produce significantly lower than the national yield average. This probably explains, at least in part, the second surprise of the USDA increasing the national yield average by ½ bushel per acre.
Overall, the USDA only changed total production by 26 million bushels. To offset the small gain, export potential was increased by nearly the same amount for the coming year.
The market will now focus entirely on weather for the next 2 weeks. Then the September USDA report’s yield estimate will be the main driver for bean price direction. As the chart below shows, any production problem will mean extremely tight carryout and potential price rationing.
Looking into early next year, Brazil is expected to produce a massive soybean crop, which could increase world bean carryout. Early estimates indicate it will be 20% larger than what Brazil produced the last two years and 30% bigger than what the US normally produces assuming they receive normal weather in the growing season.
South America still has a 60% chance of a 3rd year La Nina this winter, which is down from 85% earlier this summer. If Brazil’s production is affected by dry weather as it was this past year, world stocks will be lower than current levels.
Bottomline
The corn market looks stronger now than before the report. The bean market still has a lot of questions, with US weather being a major factor over the next two weeks.
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Jon Scheve
Superior Feed Ingredients, LLC
