October USDA Report Shines a Bit of Light On Soybean Futures

Rain has put harvest at a standstill in mid October in Ontario. I was fast on my way to completing soybean harvest and planting all my wheat before a series of showers shut things down. On October 18th, I got up and harvesting again. Corn is running at about 25% moisture in my neighborhood so by the time I’m finished soybeans, it should be just about right.

I am expecting a crop a little bit less than average especially for soybeans. It is a cliché now to talk about the Ontario crop being variable, but that is exactly what it is. Summer rains have been a large determinant of good yields. Of course, not everybody got them.

In the United States we learned today the latest estimates from the USDA. In the October WASDE report, 2017/18 corn production was pegged at 14.28 billion bushels, which was up 1% from their September forecast. The corn-harvested acreage was actually lowered to 83.1 million acres, which was down 4% from last year. The US national yield for corn was boosted to 171.8 bushels/acre. This report was the first of the year to use farmer reported acreage data from the USDA’s Farm Service Agency.

I’ve been a bit of a corn bear all season. The 171.8 bushel/acre really doesn’t surprise me even though many American farmers felt that yield was much too high in August. My trip across the American Midwest to Iowa in the first part of August really colored my view. The crop looked at least that good even if it was on the dry side. It is testament to corn genetics that US national yield will be this high especially in a year when moisture was at a premium.

Soybeans on the other hand surprised me. You might remember my line about soybeans being the greatest liars. USDA actually reduced US national yield to 49.5 bushels/acre down .4 bushels per acre from last month. I was all set for an increase in the soybean yield from the USDA, but it did not happen. Soybean production is now pegged at 4.431 billion bushels on a harvested acreage at a record high of 89.5 million acres. The USDA actually pegged domestic soybean ending stocks at 430 million bushels, which was down from the whopping 475 million bushels reported last month. This is much more than last year’s 301 million bushels. However, keep in mind that the USDA consistently overestimates these ending stocks.

The reaction to the report was pretty bullish especially for soybeans. In fact, November soybeans finished up $.26 on the day at $9.92. This actually put the November soybean futures at a new two-month high. Merchandisers on Twitter were calling for people to sell soybeans. After two months of almost nothing it did seem like Independence Day. Still, we have the largest American crop ever coming off the field. It is a testament to insatiable soybean demand that we can have futures prices of almost $10 with such a large crop in the field.

The USDA pegged corn-ending stocks of 2.34 billion bushels. That’s pretty huge when it comes to corn ending stocks so it certainly doesn’t bode well for corn prices. The 171.8 bushels per acre is reflective of the great productivity built within modern corn hybrids. You could almost muse now going into 2017 if we have the normal productivity gains, we are looking at even higher yields net year. It is simply natural and when you add that to the 2.34 billion bushels of ending stocks, corn prices aren’t in a growth mode. In fact, with ending stocks growing the average cash price to American producers next year may surely be sub $2.90 bushel.

Of course, that’s if everything is benign in American corn country next year. Nobody knows where price will go but we are building up big stocks and demand is not keeping pace. How this will manifest itself on 2018 planting intentions at this point in October 2017 is an open question. Our friends in South America are adding to that puzzle right now with their partially planted fields.

For the Ontario and Québec grain farmer saddled with a loonie flirting with $.80 it means lower prices. Cash corn prices are currently between $4.15 and $4.60 a bushel cross Ontario. Cash soybean prices are around $11.50 to $11.70 a bushel. Looking ahead, it would seem corn doesn’t have a lot of upside. Soybeans on the other hand have several weather markets to endure in South America. Planting is going ahead in Brazil and soon to be in Argentina. Get two weeks of hot dry weather, soybean futures will move strongly.

When the weather clears, it will be hammer down for all combines. The last two weeks in October can be beautiful. It’s what we need. A little bit of sunshine on these crop prices would help too.