This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

USDA’s report on Tuesday gave us one of the biggest surprises of the year. Not only was USDA corn yield above even the very highest yield guesses, they also added 2.5 million acres of corn to the balance sheet. Those two changes increased production a whopping billion bushels from their last report — and 2 billion higher from last year. If you just looked at the numbers on the report, you would have expected the corn market to be limit down or close to it.

I think it’s a victory that we closed today only down 13 and actually closed higher on Wednesday. The market clearly already had some of this increase priced in. The acreage adjustment came from USDA reported acreage data. The USDA will continue to tweak the acres now, but incorporating the FSA data usually causes the biggest adjustment. Despite this huge production increase, carryout was only up half a billion bushels to 2.1 billion. That is certainly comfortable, but not extreme. In fact, last summer, USDA was estimating similar carryout levels for that crop year, and we ended up with only 1.3 billion.

The debate now is whether we have seen the biggest production figures of the year. The old adage is that big crops get bigger. But if you look at the history of the August report, in years when USDA made a big upward adjustment to production, they end up lowering that approximately 70% of the time. We also have to achieve very robust usage to reach USDA projections. But the low prices are giving buyers plenty of opportunities to lock in cheap prices, so they’re not out of reach.

The weekly close will be important on the charts. If traders think the momentum is turning higher, it will bring corn users to the market to buy — and also may spark the funds to buy back some shorts. Assuming we have seen the highest production estimate, and we do not lose demand somewhere, it is possible we have seen the low — or at least close to it — in corn. But there are still a lot of unknowns, and those are pretty big “ifs.”

A lot of the bean acres that went to corn were taken out of beans. The USDA report was bullish for beans, as the USDA raised yield but lowered production due to the acreage reduction. That lowered carryout to 290 million bushels, which is lower than the current year. The USDA tightened up the bean balance sheet, but we’re still in the same situation as before. If China does not buy anything from us, we’re going to have too many beans. If they buy some, we’re going to be very tight. So far, they’ve bought nothing from us.

Trump tweeted they should quickly quadruple their purchase of U.S. beans — but four times zero is still zero. The market remains hopeful, but we need to see some progress or activity sooner. The market is going to go back to pricing in zero sales.

The other variable for beans is South American weather. As the U.S. growing season finishes up, we’ll start looking to planting in Brazil. If there is a weather threat or scare down there, the market will expect China to have to buy from us — whether they want to or not.

Crop tour season has also arrived. The Pro Farmer Crop Tour starts next week, which will be widely followed by the market.