Grain prices improved dramatically Nov. 8 on the Chicago Board of Trade. Welcome news from the U.S. Department of Agriculture World Agricultural Supply and Demand Estimates report gave a shot to futures prices.
Markets had been struggling with two conflicting views of the markets in recent weeks. First was the idea that we had huge crops, and supplies would limit any significant price improvement. Second was the idea that the futures recent spread history suggested there was more strong immediate demand than would be indicated by an assumed large supply of corn and soybeans.
That would suggest the opposite, with price improvement.
Implicit in the large supply idea was the assumption that the season-ending hot and dry period had not hurt production numbers. The large supply picture was dependent upon confirmation that the weather had not hurt yields.
Surprise
We had a Gomer Pyle moment Nov. 8: “Surprise, surprise!” (That remark assumes my average reader is old enough to remember Gomer Pyle.) The surprise was that USDA revised the corn and soybean yield estimates and the resultant crop production estimates downward to reflect, no real surprise, the hot and dry conditions at the end of the year. USDA analysts think we took a significant amount off the yields.
USDA now estimates the average corn yield will be 183.1 bpa, a drop of 0.7 bpa. That is not any big change, but it is in the right direction to help price, and it results in an estimate of the nation’s crop size at 15.143 billion bushels, a 60-million bushel reduction from the October report.
The soybean crop was even more significant, coming in with a yield reduced by 1.4 bpa, when the trade expected a modest 0.3 bpa adjustment.
That gives a yield of 51.7 bpa, which makes a crop reduced by 121 million bushels. The ending stock is now estimated at 470 million bushels, which was reduced by 80 million bushels. Unfortunately, even with the big adjustment, that is still the largest ending stock of the last five years.
Going along with cuts in our crops, USDA cut estimates of some other countries’ crops, but not by a lot. The global stocks are now estimated to be cut by 129 million bushels, but most of that is here in the U.S. South America, which has been struggling to get enough rain, got some this week. Their crops, coming off mostly in February and March, are now estimated to end up 700 million bushels better than this year.
Bounce
The USDA bounce helped December corn futures to a high of $4.34 3/4 Nov. 8, the highest since the end of June. That would be more exciting if there had been follow-through Nov. 11. In fact, we have slipped a little with December corn futures trading at $4.31 as we were nearing midnight going into Nov. 12 when this was being written.
The weakness Nov. 11 could be because a report day usually only makes the market react for a day. Or, it could be because it was Veterans Day, which is a government holiday. The markets were open, but we did not have any government reports.
One article I read said there was a lack of news, farmer selling and bearish outside markets (especially crude oil). I think they were covering all the bases.
Looking at prices, the December corn futures had a high the first day of October at $4.32 1/2. That was followed by a low Oct. 17 at $3.99 and then a high of $4.24 a week later. We had a low of $4.09 1/4 Oct.31 and then that $4.34 3/4 on Nov. 8.
Following January soybean futures, we were at $10.21, off $1.25 so far. The high was at $12.40 May 7, followed by five short cycles lower to a low of $9.73 1/2 Aug. 14. A couple of quick cycles higher got us to $10.87 Sept. 27 and then to a low of $9.78 1/2 a month later on Oct. 29. The high Nov. 8 after the report was $10.44.
We had an exciting day as we digested the yield estimate cut, with a range of 22 1/2 cents, but only finished up 4 cents.
Politics
There is still a lot of talk about what the election of Donald Trump could mean to ag policy and prices. I wrote last week about the Phase One agreement with China that we finally got done in 2020. The biggest surprise in the fulfillment of that agreement was that, contrary to some opinion, the Chinese did fulfill it, and that a lot of it ended up being corn. Until then, we had sold very little corn to China.
Right now, the Chinese are not buying corn from us, and there is some worry that we will have some trade troubles with the Chinese that will not improve those exports. I was encouraged by a rumor that Trump was going to name Robert Lighthizer as our U.S. Trade Representative. If I remember right, he is the one who negotiated the Phase One agreement. However, this evening I was seeing speculation that this was just a rumor.
Those in the production ag business should not be encouraged by articles suggesting that the current downturn in commodity prices could be protracted.
On my phone was an article about an 80-year old farmer and how successful he was farming frugally with 80s equipment. The article included the startling statistics that tractor sales had declined 19% in the last year and combine sales were off 40%.
The articles suggested that it could be a good year to get equipment at the other guy’s farm sale. Yuck!
