Last week, I suggested some of the reasons that grain prices could recover. I mentioned that we would not have good crop production numbers until August as one reason for hope. Check that!
On Aug. 12, we got those production numbers, and they were bearish for soybeans. Maybe the best we could rationalize was that they were neutral for corn prices.
The U.S. Department of Agriculture now expects a record soybean crop. This is not exactly the kind of news we really needed, and it proved itself with a close well below the $10 benchmark in November soybean futures.
The market Aug. 12 gave us a November close of $9.86, something we could have done without. Worse, in early trading Aug. 13 as this is being written, November new crop soybean futures have traded as low as $9.68, and we are now trading $9.70 1/4. Yuck! (That’s a technical term. We are now officially in a “yuck” market.)
Looking for the good
If we search for good news, it may be in corn. There we had a close in the December futures of $3.97 Aug. 9. We are currently still below $4, as we are trading $3.98 1/2, down three cents. We managed a close of $4.01 1/4, but that is gone by just a little. Maybe this is not really good news.
The fundamental reason for the price declines come with the new crop production numbers. USDA now pegs the soybean crop at 4.589 billion bushels. Worse, that comes with a higher yield of 53.2 bpa, an adjusted planted acres estimate that has been raised one million acres and gives us a carryout of 560 million bushels. That is the highest carryout in six years.
The corn side of the USDA report shows a new crop production of 15.147 billion bushels, which comes from a record yield projection of 183.1 bpa. That is up 2.1 bpa from previous estimates.
The corn-planted acreage was lowered by 800,000, and harvested acres lowered by 700,000 acres. (I always wonder where the unharvested acres go.) The yield flies in the face of the significant crop problems we have seen here and there (early excessive rains in the Northern Corn Belt, dryness other places, including some in Ohio).
USDA also released the World Agricultural Supply and Demand report. Notable in that report was a world corn production reduction of 4.9 MMT and a world wheat production increase of 2.0 MMT.
These reports, and resultant reactions, remind me that my bias tends to be bullish. That is frequently an error in judgment. Pappy always said that there are three kinds of people in this world: pessimists, realists and optimists.
He said no pessimists farm and very few realists do. This was to remind us that farming is a game for optimists. The sun will come up tomorrow, the crops will recover, prices will be better, Farm Credit always has more money to borrow.
I remember saying that from the podium of a Farm Credit meeting one time, and it was not appreciated by the lenders in the back of the meeting. I suggested that the need for money was never a good reason to sell grain, since Farm Credit had plenty of money. They do, except for a few ugly years when they went broke along with their farmers.
Also, no matter how much money they have, they will not loan it to you when you can’t convince them you will make a profit with it. That convincing is a little hard right now.
A look back
It is ugly, but necessary, to look back a few months at from where we have come. The recent high for December corn futures was May 15, at $4.96 3/4. That means we lost just a quarter cent less than one dollar between May 15 and Aug. 8.
The recent high for November soybean futures was at $12.30 1/2 May 7. That is most of a $2.50 per bushel loss since early May. The December futures wheat high was back on May 28 at $7.50 1/4. We were trading at $5.57 1/4 the morning of Aug. 13, most of two dollars lower.
What was going on in early May that gave us the highs? We had significant areas of heavy rain and delayed planting. That was the last time we had any good reason to think the crop could be small. We still have reasons why some areas do not have good crops, but August production numbers from USDA tend to be pretty accurate for corn.
We could still have some weather damage to soybeans, which fill pods in August, but the extended forecasts do not indicate that, and we are already almost a third of the way through August, and crops are mostly ahead of the calendar now.
Since I am not at risk personally (or for the last 30 years) for price problems, it is easy for me to pontificate about grain prices. The axiom that comes to mind is that, in general, we are normally better off with a good crop and poor prices then with a poor crop and good prices.
If there is no change soon, it will not feel like we are better off. There is nothing about producing crops for less than the cost of production that feels good. I remember five years of poor yields and terrible prices in the 80s. It was not fun then, and it is not fun now.
