Expect Yield Adjustments in August
What’s happened…
The June 30 USDA Acreage Report had some big surprises, mainly these came in the form of acreage. The report showed an increase of two million acres for corn and a reduction of four million acres for soybeans. The July WASDE (World Agricultural Supply and Demand Estimates) also contained surprises. In this case, however, the surprises came in the form of numbers that did not change. Corn exports were left unchanged. This is almost shocking, as the U.S. has had only a handful of weeks in the last several months that were termed supportive. Time is working against U.S. corn sales reaching USDA estimates. Another non-change was the yield estimate for soybeans. For lack of better words, the USDA likely “kicked the can” down the road for another month, waiting for July weather results before making an adjustment. With a challenging dry weather pattern intact for most of the Midwest during June, no change to yield is a bit of a surprise. Soybean weekly crop ratings at the end of June had 15% of the nation’s expected crop rated as poor or very poor. These numbers hardly suggest a record yield at 52 bushels.
Why this is important…
Due to less-than-ideal growing conditions for many, expect that both corn and soybean yield projections will show a change in August, with both figures likely to be lower. For corn, the June yield estimate dropped from 181.5 bushels an acre to 177.5, still a record. While crop ratings have stabilized, they are still considered the second worst since 2012. In 2012, drought dropped the final yield to 123.4 bpa, down from early season estimates of 165 and 2011’s 147.2. Since 2012, farming practices and hybrids suggest yield will perform better in droughty conditions, yet it is likely that the current record yield estimate for corn is too high. Soybeans, currently forecast at 52 bushels per acre, is likely also too high. Crop ratings do not appear conducive to this year’s crop eclipsing the all-time high of 51.9 bpa in 2016.
Changes in yield projections will likely increase price volatility. If the USDA does lower yield, it could give prices a reason to rally. However, also expect usage to be reduced, with the current slow export pace and smaller beef herd indicated in the most recent USDA Cattle Inventory Report.
What can you do?
There are ways for corn and soybean producers to manage their price risk. Consider placing price targets at higher prices to take advantage of a price rally. If filled, you can consider purchasing call options (fixed risk) if you desire to retain ownership. If you don’t want to commit to delivery, consider purchasing put options to establish a price floor, leaving upside price potential unlimited. Feed buyers could consider securing actual inventory (bird in hand). Smaller crops tend to create increasing basis (cash prices getting stronger versus the futures price). Once contracted, a put purchase is a consideration to protect the cost of your feed, should prices decline.
Concentrating on strategy can prepare you for any price movement, rather than trying to guess how the market will move. Whatever your situation, be ready for price movement in the weeks ahead. Learn the potential risks and rewards of entering into any position, as well as the risks and rewards of doing nothing.
Editor’s Note: If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty