TOP FARMER WEEKLY PERSPECTIVE 09/02/2022 BY BRYAN DOHERTY
Pro Farmer Tour, DTN Digital Tour, WASDE Estimates
If both the Pro Farmer and DTN tours are even close to accurate, a rather large downgrade by the USDA is in store for this year’s U.S. corn crop. In the August WASDE report, the nation’s corn yield was forecast at 175.4 bushels per acre for a total production estimate of 14.359 billion bushels. Pro Farmer is estimating yield at 168.8 bpa or total crop size near 13.759 billion bushels. DTN’s digital tour estimated corn yield at 167.2 bpa and total crop near 13.675 bb. (Note we rounded our total estimates for easier reading.) These large drawdowns estimated by both Pro Farmer and DTN signal a potential major shift in production and a wake-up call to end users.
Higher prices generally means less demand. Corn futures have added in the range of 1.00 per bushel since bottoming on July 22. If demand is not changed, projected carryout could fall over 550 million bushels to near 825 million bushels, historically tight. In a year of a major war reducing Ukrainian crops, the need for a near-ideal crop is necessary to meet world demand. A late start to the planting season and continuous pockets of adverse weather are primary reasons for expected lower yield this growing season. Baseline projections in February had initial yield pegged at 181 bpa. This figure dropped to 177 in May due to the late start, and was reduced to 175.4 on the August report, due primarily to dry conditions in the western Corn Belt. There is a chance the USDA will find different numbers than Pro Farmer or DTN. Though there are no guarantees this year will be similar, history suggests Pro Farmer is usually within a range of 3% for final yield. This would imply the upper end yield near 172, still well below the 175.4 current WASDE estimate.
The implication is that tight supplies are here to stay. Farmer selling will likely be stingy on price setbacks. We expect basis levels to firm after harvest. Since 2019, the cash market has usually lead futures higher, and we expect the same this year. End users could consider buying cash sooner than later, especially if a dip in prices during the harvest season occurs. Also consider calls and puts to create a balanced approach. If you buy cash corn, consider puts to manage downside risk. If you want to protect upside price risk for future cash purchases, consider buying call options until cash grain is secured. Brazil will likely plant a significant increase in soybean acres with expectations of more double crop corn to follow. While this will make for potentially more supply available to the world, this production will not be available for about nine months. The bottom line to all of this is an expected increase in volatility with large price swings likely.
There are no guarantees that the market will follow recent history, and no one can accurately predict what will happen. Now is the time to plan ahead. Visit with a professional to plan for various market moves, before fall fieldwork begins.
If you have any questions on this Perspective, feel free to contact Bryan Doherty at Total Farm Marketing: 800-334-9779.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.