This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
On Tuesday, USDA released its November Supply and Demand report. Ahead of the report, USDA announced it was going to use AI to help check its calculations. The agency made sure to distinguish that it was not using AI to come up with the projections, just to check its math. We certainly would not want another minor, insignificant error like the one it claims to have made on the September report. But the October report, which had so many questionable numbers, still stands completely unchanged. So I went into yesterday’s report with more than a little apprehension after the last two reports and the absolute beating the market has taken. One good thing about going into a USDA report so demoralized is that it does not take much of a bullish surprise to get a pretty nice reaction. I guess whatever AI USDA used felt sorry for us after the last couple of months.
USDA lowered corn yield by 1.6 bushels to 179.6, cutting production by 141 million bushels and lowering carryout to 1.758 billion bushels. Soybean yield was raised, as expected, to 53.3 bushels, but not nearly as much as some had feared. USDA also raised soybean exports, actually lowering projected bean carryout to 300 million bushels despite the bigger crop. The market responded with a strong rally in both corn and beans.
When the market is falling, every headline seems bearish. We have been probing for a harvest low for weeks but kept breaking through support after support on fund selling. Now there is a pretty strong case that the seasonal lows are finally behind us, with the bulk of harvest complete and this bullish reaction to USDA’s report. USDA’s reduction in corn yield also lends some credibility to the mixed yield reports we have been hearing throughout harvest. StoneX remains an outlier with its 183.1-bushel corn yield and 55-bushel bean yield estimates. Meanwhile, basis across much of the country has been getting considerably stronger. Many Midwest farmers moved beans early when big premiums were offered, giving them the cash and storage space to sit on corn. Neither crop overwhelmed storage like you might expect with the monster crops some were predicting. Strong basis does not prove USDA’s estimates are wrong, but it certainly does not support the idea that we are swimming in excess bushels either.
As we get more certainty on the size of the U.S. crop, the market can turn its attention toward demand and South American production. Demand remains the biggest bullish driver. We have produced record crops in the U.S. and Brazil for several years and still have relatively tight balance sheets. USDA raised bean exports, acknowledging what the market has been expecting: China will likely fulfill its commitment to buy 25 million metric tons of U.S. soybeans. The $17 billion of other agricultural products they supposedly agreed to buy is still a lot more questionable.
South American planting has progressed well, with very little significant weather threat despite all the talk about the super El Niño. That is one reason funds have been bailing out of their long soybean positions. One thing not getting much attention is the cost of inputs in Brazil. Phosphorus sales are reportedly down 22%, and imports of urea and ammonium sulfate were reportedly down 25% through September compared to last year. Some of that may be timing, but if farmers are cutting fertilizer applications, weather-based yield models may not fully account for the effect on production. That could be especially important for Brazil’s second-crop corn. Right now, the market is pricing in a very good South American crop, but there is still a lot of growing season ahead.