This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
On Friday, USDA gave us their latest supply and demand estimates. The September report is the first one that includes actual, objective measurements from the field to estimate yield. They field sample to get actual ear and kernel counts in corn, and pod counts in beans. The market was expecting reductions in yield for both corn and beans, and lower carryouts. What we got was a huge surprise, but it came out of left field. USDA added another 1.4 million acres to corn, and a few acres to beans as well. If you will recall, USDA also added 2.5 million acres to corn on the August report. So corn acres have now been increased by 3.9 million acres from the June planted acreage report. This is a huge curveball for the market to absorb. It used to be that we could count on the June report, and then we made slight adjustments in the fall using the FSA data. USDA was asked on Friday how they missed this so badly this year, and they said they do not know yet. The low response rate on the acreage surveys is one possible cause.
So, USDA gave us the yield reduction we were looking for, lowering corn yield a little over 2 bushels an acre to 186.7 from 188.8 last month. But with the added acres, we actually saw estimated production up just a bit. They increased export usage, which offset the increased production and left carryout close to unchanged at 2.1 billion bushels. The market had expected a significant drop in carryout, so this was a very bearish report. The market sold off when the numbers first came out, but then through the rest of the session, the market rallied back and closed at levels we have not seen since mid-July. The old saying is that a market that does not fall on a bearish report is not bearish. The market believes there is still room for yield to fall further. We are just barely getting started in harvest in the Midwest, so early yield reports are anecdotal at very best, but they continue to point to disappointing yields in many areas. In the eastern belt, too wet was followed by dryness and heat. In the western belt, there are a lot of areas with significant disease pressure. This is not going to be the crop we had the potential to make only a couple of months ago. The end of the growing season had too many adversities. Make no mistake, though, it is still going to be a very big crop—just not as big as we earlier thought and priced in. We also have some very big demand estimates we have to make too, and the market is skeptical we can achieve those.
Last month, when USDA made the first big change in acres, they added to corn and subtracted some from beans. On this report, USDA increased bean acres as well. They also lowered bean yield a tenth of a bushel to 53.5 bushels per acre, but total production increased marginally. Carryout was estimated higher. Soybeans have been at this same crossroads for months now, and U.S. production is not going to be the biggest driver of price direction. If China buys from us, we could be very tight. If they buy nothing, we are going to have way too many. We have been replacing export demand with domestic demand, but we have not replaced all of it yet. Beans are either going to be over 11 or have a 9 in front of them in the next few months. The market cannot handicap the odds on that, so we are trading right in the middle. The U.S. said negotiators made progress in Spain with Chinese trade representatives over the weekend and reached the framework of a deal over TikTok, but no mention of beans so far. South American planting will begin soon, so the market will also be watching South American weather closer down there.