As Combines Roll, the Vicious Cycle Continues to Build

I’ve been solidly into soybean harvest since September 20th. On September 30th, I finished one farm severely affected by heavy water, 5 inches of rain in about two hours in late June. Since then, that soybean crop had wet feet and my expectations were in line with what I got. I’m putting it behind me and hopefully the next time I have that farm in soybeans, I’ll be like my friends on Twitter and their 70-soybean bushel yields.

In this field I quickly following up with SRW wheat, almost chasing the combine across the field. You are going to have to think about that one, as I farm mostly by myself, but in peak harvest season a few family members show up. Wheat is the only crop we expose to 4 different seasons of risk in southwestern Ontario, so I’m hoping for good things as I look ahead. Fall, winter, spring and summer in the offing will surely challenge its potential. A good wheat crop takes quite a bit of luck too and a lower Canadian dollar surely doesn’t hurt.

If it wasn’t for all that harvest activity my eyes would have been on the grain markets September 30th. Why you say? Well, September 30th is the day annually when we get to see where the USDA pinned the tale on the donkey. In other words, we get to see, just where grain stocks were on September 1st and get a reboot on the numbers for this year. Of course, USDA didn’t disappoint, pegging more than expected US corn stocks on September 1st at 1.236 billion bushels. USDA didn’t stop there pulling a rabbit out of the bag, boosting the soybeans stocks number to 256 million bushels, a whopper if I ever did see one. I guess, $14 a bushel wasn’t enough for some people. US winter wheat production was reduced to 1.28 billion bushels.

I was surprised at the soybean number, although cash prices have been falling in the US since late spring. I have been of the belief the true number was closer to 100 million bushels of soybeans even after the USDA had pegged this figure at 175 million bushels in their September supply and demand report. However, they obviously found some magic bushels, with 256 million bushels of soybeans still being down 51% from last year and the lowest in 5 years.

Soybeans crashed down 27 cents on the news, which reflects the new reality. As it is now, we’ll trade what is being taken off in the fields, and surely some of those yields will be better than mine. China will likely be a happy shopper at these prices. At the same time our Brazilian friends will be planting a record soybeans crop in October, hoping to cash in on another good year.

Keep in mind, USDA will continue its game of pinning the tail on the donkey into the future. That’s what they do, make the numbers all work and count the beans. For instance, today, they reduced the corn planted area for (old) old crop, 2020/21 down 90.7 million acres and final yield was also reduced to 171.4 bpa just over a half bushel difference from their last estimate. It’s just another example of the USDA “Final” January report, not being final. Stay tuned for USDA January 2022.

Is it all noise? No, not necessarily, as it gives us a picture of what the computer algorithms like to trade in Chicago. Fundamentals still matter and that means harvest weather will surely be one factor. Now, it’s good for me in southwestern Ontario, but also across the greater corn belt as both corn and soybeans are coming off rapidly. We will see if soybeans are the great liars and if those late season diseases like Tar Spot in the Eastern corn belt are taking a bite out of yield.

This is happening at a time when my satellite radio is crackling with news about supply and transportation constraints. You know the drill, we’ve talked about it on these pages before, containers being shipped back to
China empty, port congestion in Long Beach and Chinese ports, Covid induced supply hesitancy. We hear about astronomical fertilizer price increases, along with everything else. In my soybean dust confused brain, it made me ask if simple commodities like corn and soybeans are too cheap in this environment?

The answer is December corn closed at $5.39 today and November soybeans followed at $12.36 as of this writing Do you think that’s too cheap? Well, sometimes I think in our current environment described above it is, but when I look at recent history, it isn’t. The question is what’s the future and will these prices be sustained, or will we simply have to produce more and more on the same acre to pay the input costs? Hmmm, I think the latter. Agricultural Economics always wins and as combines roll, the vicious cycle we’re in continues to build.