Each Monday morning I participate in a conference call of market observers over the Midwest. This Monday it was interesting to see harvest results, as we are well along or nearly finished harvest in many prime areas.
To generalize, farmers are finishing up in areas like Southern Illinois and Southern Minnesota, and are pleased with corn yields, but not excited about soybean results.
In many cases, farmers are selling unexpected corn bushels to preserve basis levels where the river problems have not impacted them yet. They are binning soybeans with the hope of higher prices, and with the observation that the crop is not as relatively good.
USDA reports
These attitudes were borne out in the U.S. Department of Agriculture WASDE reports, out Oct. 12. The corn numbers were considered neutral, but only because the cut in production estimate was anticipated. The soybean numbers were considered bullish since they were at the extreme of pre-report estimates, but the bullish reaction of soybean prices was limited.
The USDA says that the corn yield will be 0.6 bpa below the September estimate, at 171.9 bpa. This yield has been gradually reduced over the summer from the starting point of 177 bpa. With some other juggling of numbers, we end up with a crop estimate of 13.895 billion bushels and ending stocks of 1.172 billion bushels.
Remember, the traditional number for “pipeline” supplies is one billion, and in recent years, we have thought 1.1 or higher is a better number. This yield estimate is not a huge change, but it is in the bullish direction, as has us seeing at one point the highest corn prices since late June.
December futures touched $7.061⁄2 Oct. 10 but did not close over $7, which would have been a bullish price of note. We had a big range on June 27 to give us a high of $7.253⁄4 that day. The price of December futures Oct. 18 was at $6.771⁄4.
The bullish surprise in the reports was the soybean yield of 49.8 bpa, a drop of 0.7 bpa. This was at the low end of expectations and shows us a crop of 4.313 billion bushels. The market expected 50.6 bpa and a crop of 4.381 billion.
The reaction to the report was a gain of 163⁄4 cents for the week, but since we have been at the low end of the recent trading range, this was not that much of a reaction.
The close Oct. 12 was at $13.96 for November futures, and we are now trading at $13.83. In June, we were at $15.151⁄4 at one point, with war hype on a crop that was not directly affected by the war.
Wheat
Wheat futures have been the real disappointment this summer, and the recent reaction to USDA numbers adds to that disappointment. The report was termed bullish for wheat, but Chicago wheat was off 20 cents for the week.
Wheat, the crop most directly affected by the Ukraine conflict, put in a Chicago December contract high May 17 of $12.82. By June 17, when corn and soybeans were still high, the wheat had drifted to $11.08 for a high. By Aug. 18, we saw a low of only $7.431⁄4! At that time, we were trying to reason out how we could have lower prices than when the war started.
In recent times, wheat prices have improved, even as exports were allowed out of the Black Sea, which should have hurt prices. We traded a high of $9.493⁄4 Oct. 10 but were at $8.493⁄4 Oct. 18.
Wheat prices have improved recently on the realization that the current movement out of Ukraine would come to an end soon with the non-renewal of the Russian-Ukrainian shipment agreement. It is expected that the Russians lost all interest in an extension of the agreement when the bridge to Crimea which is the main ingress to their stolen ports there was bombed recently.
The reaction was ugly, with the Russian destruction of civilian targets in main cities. The Russians, having stolen Crimea a few years ago, don’t like the idea that the Ukraine government has hopes of getting it back.
In the states
In other news, the Mississippi River system continues to run water so low that barges are being half-loaded, backing up traffic and filling elevators. Anecdotal reports have some river elevators’ basis going from .30 over to $1 under, which is essentially “no bid.”
Remember, the threatened rail strike would make the low river a disaster. An agreement was reached, but the rail union has not approved it yet.
Midwestern farmers are using good weather and improved fertilizer prices to apply higher amounts than normal of potash and phosphates this fall. Farmers fear spring shortages and higher prices. Russia is the world’s largest producer of fertilizer, and we are trying to boycott them.
So, we have high prices for corn, beans in the teens but not the high teens, and the fear that production costs will make poor margins out of good prices.
On the other hand, we have a projected supply tightness that encourages us that higher prices could still be ahead, now that we missed the summer highs.
