Corn and soybeans typically are the focus of the August US Department of Agriculture’s Crop Production and Agricultural Supply and Demand Estimates (WASDE) reports and were expected to be so on Aug, but both gave way to surprisingly bullish US and global wheat forecasts.
The initial survey-based corn and soybean production forecasts of the season both came in below the average of trade expectations, but the modest price support is not expected to stand up to fall harvest pressure, possibly providing some price relief for buyers.
“Corn production estimated a couple hundred million bushels below expectations added to the bullishness of wheat,” said Paul Meyers, vice president, commodity analysis, Foresight Commodity Services, Inc.
Wheat was the market leader, at least for now.
Weather has played a large role in corn and soybean production prospects this year, as usually is the case, with drought in the Upper Midwest encroaching on parts of the Corn Belt but wetter, more favorable conditions in the eastern part of the Belt. About 20% of US corn acreage and 23% of US soybean acreage are in the dry Upper Midwest states of Minnesota, North Dakota and South Dakota.
The USDA rated the condition of the corn crop in the 18 largest-producing states an aggregate 62% good to excellent as of Aug. 15, down from 64% the prior week and from 69% at the same time last year. The east-west Corn Belt split was evident with good-to-excellent ratings at 74% in Illinois, 72% in Indiana and 81% in Ohio compared with 35% in Minnesota, 20% in North Dakota and 24% in South Dakota.
The USDA forecast US 2021 corn production at 14.75 billion bushels, up 4% from 14.182 billion bushels in 2020 and the second highest on record after the 2016 crop of 15.148 billion bushels, but 1.7% below trade expectations that averaged 15.004 billion bushels. Average corn yield was forecast at 174.6 bushels per acre based on Aug. 1 conditions, up 2.6 bushels from 172 bushels per acre in 2020 and the third highest on record but 1.7% below the average trade expectation of 177.6 bushels per acre. Of the major corn growing states, record-high yields were forecast for Illinois, Indiana, Ohio and Michigan in the eastern Midwest that have received much more favorable precipitation than Upper Midwest states.
The USDA forecast was based on harvested area of 84.495 million acres, unchanged from the USDA June Acreage report but up 2% from 2020. Harvested area could come down, but that won’t be adjusted (by the USDA) until October, Meyers said.
Meyers said he was surprised by the yield forecast under 175 bushels per acre, and when coupled with the potential of lower harvested area in the western Corn Belt, the corn production forecast has potential to move lower in coming months.
Brian Harris, executive director and owner, Global Risk Management, also noted the corn yield forecast was “a bit” lower than expected but could be raised 1 to 1.5 bushels an acre in September amid favorable weather.
In its August WASDE report, the USDA raised from July its forecast of corn carryover on Sept. 1 (2020-21 ending stocks) by 35 million bushels to 1.117 billion bushels as a 75-million-bushel reduction in 2020-21 exports, forecast at 2.775 billion bushels, more than offset a 40-million-bushel increase in food, seed and industrial use of corn, at 6.510 billion bushels.
For next year the USDA projected carryover of corn on Sept. 1, 2022, at 1.242 billion bushels, down 181 million bushels, or 13%, from July as lower production (from trendline forecasts) more than offset higher carry-in and 100-million-bu reductions from July in both feed and residual use in 2021-22, forecast at 5.625 billion bushels, and exports, forecast at 2.4 billion bushels.
“Most surprising in corn was the 2021-22 US export forecast, that they (USDA) lowered by 100 million bushels,” Meyers said. He noted adverse weather in Brazil had reduced that country’s current-year corn production, with most of the decrease coming out of exports. The USDA forecast Brazil’s 2020-21 corn production at 87 million tonnes, down 6 million tonnes from July, and exports at 23 million tonnes, down 5 million tonnes. The USDA expects Brazil’s corn crop to recover in 2021-22, with production forecast at 118 million tonnes and exports at 43 million tonnes, both unchanged from July.
China continues to play an important role as a major export destination for both corn and soybeans. The USDA forecast China’s corn imports at 26 million tonnes for both 2020-21 and 2021-22, unchanged from the July forecasts and compared with just 7.6 million tonnes in 2019-20. China “needs to buy quite a bit more corn” to reach those forecasts, Meyers said.
“China is always a wild card because imports are so high,” Meyers said. “I think they will buy and get close to 26 million tonnes. If China stays away, it could add pressure to corn prices as harvest nears.”
Harris expects China will fall short of the 26-million-tonne forecast, which may make the USDA’s lower US export forecast “justifiable.”
Chicago corn futures last week were trading from about $5.20 to $5.75 per bushel, up 60% to 70% from a year earlier, with the December 2021 contract near $5.65 per bushel.
Meyers expects lows in the range of $5.40 to $5.50 per bushel for December corn futures over the next three or four months, mostly resulting from harvest pressure and potentially increased selling by farmers at favorable corn prices.
“It’s not uncommon to see an 8% to 10% (price) decline into harvest from August,” Meyers said, but he added such a decline may be tempered “if wheat keeps going up.” Further, the lower carryover “magnifies everything going forward,” he said. “There’s no cushion when you start with carryover of 1.2 billion bushels.”
Harris sees December corn futures moving even lower, possibly trading between $5 and $5.25 per bushel into the fall, even with support from wheat futures, “unless soybeans take off.” He noted corn prices have struggled to sustain gains the last couple months.
Soybeans to see pressure
The USDA forecast 2021 US soybean production at 4.339 billion bushels, up 5% from 4.135 billion bushels in 2020 and the third highest on record if realized but modestly below the trade average estimate of 4.375 billion bushels. US average soybean yield was forecast at 50 bushels per acre, down slightly from 50.2 bushels per acre in 2020 and below the trade average of 50.4 bushels an acre. Harvested area was forecast at 86.72 million acres, unchanged from June but up 5% from 2020. As with corn, the USDA forecast record-high soybean yields in eastern Corn Belt states.
Meyers said the USDA soybean production forecast was “not too far off,” and Harris agreed it was “pretty close to reality.”
The soybean crop condition in the 18 major states as of Aug. 15 was rated an aggregate 57% good to excellent, compared with 60% a week earlier and 72% a year ago, the USDA said in its weekly Crop Progress report. Good-to-excellent ratings were 71% in Illinois, 68% in Indiana and 73% in Ohio compared with 29% in Minnesota, 14% in North Dakota and 22% in South Dakota.
The USDA in its August WASDE forecast US soybean carryover on Sept. 1 at 160 million bushels, up 25 million bushels from the July forecast based on a 15-million-bushel decline in crushings and a 10-million-bushel decline in exports. Carryover on Sept. 1, 2022, was unchanged from July at 155 million bushels as lower supplies in 2021-22 were offset by lower crush and exports.
Chicago soybean futures last week were trading from about $12.30 to $13.70 per bushel, up about 45% to 50% from a year earlier with the November 2021 contract near $13.65 per bushel.
As with corn, both analysts also see pressure on soybean futures going into harvest. Harris said he expects the November soybean future to drop from recent levels around $13.75 per bushel to the $12.50 to $13 per bushel range into the fall, assuming timely rainfall. Meyers said he expects lows in November soybeans in the $13 to $13.10 per bushel area if weather improves.
The annual Pro Farmer Crop Tour, a Farm Journal event, checked hundreds of corn and soybean fields across the Midwest from Aug. 16-19. Findings generally supported trade sentiment that crops in the Upper Midwest were drought stressed and had lower yield and production prospects but in wetter eastern areas of the Midwest had greater yield and production potential.
Tour results didn’t settle all the uncertainty about the crops with final yields and production still dependent on weather during the last few weeks of the growing season and during harvest.
Harris encouraged traders to “keep a very close eye on the spread of the (coronavirus) Delta variant” for possible impact on ingredient demand during the October-December and January-March quarters.
