It has been quite a week for me as soybean harvest finally got going. Southwestern Ontario has been wet almost all year and why should it stop now? Beautiful sunny dry weather took its time drying up the land. I got 3 good combine days in before the rain hit again. Soybean yield seemed very strong in my neighborhood, much stronger than last year. It would seem that when you get rain in August and early September it’s very good for soybean yields.
It is also the time of year when my farming life is in warp speed. Across southwestern Ontario no till drills are following combines as farmers race to get wheat into the ground before Mother Nature sends winter. However, why are we planting wheat? I know, rotational concerns. With last Wednesday’s USDA crop production report behind us, I’m sure there are many people asking that.
I say that because the US projected wheat-ending stocks rose about 75 million for 2011/12 because of lower domestic use and exports. Despite being price competitive with corn usage actually dropped from a year earlier and wheat prices retreated on last week’s report. As I was driving my no till drill through the field I was having 2nd thoughts. Needless to say, if I don’t grow wheat on my heavy clay soils, soil compaction becomes an even bigger issue.
I was fully expecting the October 12 USDA report to be bearish across the board. I was unable to get real-time information as my farm tasks engulfed me during the day. So when I learned that USDA actually reduced production estimates about 1% from their September estimate I was quite taken aback. I had fully expected the USDA to raise production estimates for both corn and soybeans.
The USDA pegged average corn yield at 148.1 bushels per acre the same as the September estimate. They trimmed the harvested acreage to 83.9 million acres, which reduced the corn crop estimate to 12.4 billion bushels. Even though the production was down the carry in from the 2010 crop was boosted 208 million bushels so total supplies for the 2011/12-year was raised 144 million bushels. The stocks number was bearish but I looked at the production number as bullish. However, at the end of the day maybe that was in my own mind as the trade looked at it is neutral to bearish for corn. The report came out the day after there were huge gains in the grains, which was truly bizarre for trade in front of the USDA report.
Soybeans surprised me. The USDA actually decreased average soybean yield to 41.5 bushels per acre versus 41.8-reported last month. The soybean harvested area dropped to 73.7 million acres, with production at 3.06 billion bushels. The soybean ending stocks came in at 160 million bushels, which was far below trade expectations.
The stocks to use ratio now stands at 6.8% for corn up from 5.3% in September. Soybeans stocks to use ratio is at 5.1%, which is an actual decrease from 5.2% in September. These ratios are still extremely low in historical perspective but they also represent a move by soybeans to catch up to corn in a more traditional corn soybean ratio.
Yes those numbers are all about the fundamentals. However, they show nothing about the emotions within the grain trade, specifically brought on by the noncommercial speculative trade and all the interconnectedness of the various grain players. For instance we have all the guys like me in the field producing the stuff and then we have everybody off the farm selling and trading it. In 2011, we are all connected by our computer networks “egging” each other on. I even mentioned last week a farmer who had installed in iPad in his tractor Cab. So he can watch his twitter feed and add to the potpourri of opinion about what grains will do. Add the frequency-trading going on in the big trading houses close to the exchanges and you have an emotionally charged data cloud weighing on the market. It only makes the volatility that much more acute.
So does it add to the fun or does it just make us all stressed out? At this time of year, how can you not be stressed out? Market volatility continues to surprise at a time when the European macro issues add gas to the fire. In Ontario early corn yields are over 200 bushel per acre. Soybean yields are above average. After all the challenges we have had in 2011, I think we will take that. At the end of the day prices should remain buoyant. I just hope over the next month that harvest window opens up.