This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Yesterday we got USDA’s August supply and demand report. This can be a big market mover because it was the first time this year USDA gave us an actual estimate of yield based on satellite data and farmer surveys. In the prior reports, USDA just gave a trend yield that was not adjusted for the current year growing conditions. One difference in the August report this year was that USDA was also going to make adjustments to acres. Historically we have had to wait until the September or October reports to get acres adjusted from the FSA and RMA data. This year NASS got the data early enough to make the adjustment on the August report. The market was expecting higher yields for both corn and beans and was expecting those higher yields to be partially offset by lower acres due to the issues during planting.
On corn, USDA raised yield significantly by 2.1 bushels but dropped 700,000 acres which left production almost unchanged. They tweaked some demand numbers on the balance sheet to leave new crop carryout less than the last report at 2.073 billion bushels which was a few bushels below what the market was expecting. That yield was a whole bushel higher than the market expected. For soybeans, they increased yield by 1.2 bushels and increased acres by 1 million. That resulted in a pretty dramatic increase in production. They made some changes to demand but that still increased carryout by a significant amount on beans.
The market reacted with beans selling off and corn rallying. Corn achieved a key reversal after making new lows early in the session then managing to close higher. From a technical standpoint that can be a signal for higher prices but i want to be cautious about getting too bulled up from this report on corn. At the end of the day 2 plus billion bushel carryout is still more than adequate. If the weather for the rest of August and September continues as good as it has been, we may see additional yield increases. And it is doubtful we are going to see additional acreage adjustments so the possible future yield increases will start adding to the carryout.
Without a dramatic change in weather soon, soybeans are going to struggle to gain any bullish momentum. We do have a late planted crop so some September weather will matter and we all know the crop is not made until it is in the bin but we are running out of things that can help us in the US. In September we will start watching South American weather and that could dramatically change the picture.
The funds have been reducing their short positions but still hold a massive net short. It will likely take either a change in the fundamentals or a change in the inflation outlook to spook them to cover. Farmers in the Midwest have been selling and shipping a lot of bushels over the last few weeks and that has been the natural seller while the funds were covering their positions.
The next supply and demand report comes out on Sept 12th. This will be another key date for the market that we all need to be watching. USDA will use farmer survey data and satellite images like they did in the august report and will also add in objective field sampling to update their yield estimates.