TOP FARMER WEEKLY PERSPECTIVE 11/13/2020 BY BRYAN DOHERTY

New Numbers and a New Outlook

The November USDA Supply and Demand report had major surprises for the corn and soybean markets, and consequently, long-term availability of these commodities is a potential concern. The highlights of the report were reductions in yield and lower carryout. Yield for both was below expectations, which means this was a major surprise. Just as important, a significant increase in expected exports for corn dropped projected carryout well beyond expectations.

The highlights of the report were corn yield coming in at 175.8 bushels an acre as compared to a forecast of 177.5 and last month’s figure of 178.4. This 2.6 bushel per acre reduction was a supportive factor, as was a significant increase to projected exports. The new expected sales figure is 2.650 billion bushels. This compares to 2.325 last month and 1.778 a year ago. Prior to the report projected carry out was 2.167 billion bushels, a somewhat comfortable number. The new figure is now 1.702 billion, a decline of 465 million bushels from the previous month and 350 million bushels lower than the pre-report average estimate of analysts. Perhaps the most eyepopping number, however, is the average farm price for the 2020/21 growing season now forecasted to be $4.00 versus $3.60 on the October report.

Soybeans had a somewhat similar story with yield projections down 1.2 bushels an acre at 50.7. The average pre-report estimate was 51.7 million. Carry out is now forecasted at 190 million bushels. This was 100 million bushels less than last month and compares to 523 million bushels for the same time a year ago. Two years ago, projected carryout was 909 million bushels. Exports as well as other usage numbers remained unchanged in this month’s report.

These raw numbers make for a very different potential price and supply outlook. Crop production elsewhere in the world must be near perfect, otherwise it is likely that importing countries will continue to come to the US. Consider that yield at 175.8 is still 7 bushels an acre better than last year, and soybean yield at 50.7 is still 3.3 bushels an acre larger than a year ago. Overall, we would call these good, or even very good crops. We hesitate to use the word great, as yield potential declined late in the growing season due to dry weather. Soybean production from South America must be large and near ideal. There is the real potential that weather developments in either Brazil or Argentina could create a rationing effect for soybeans. This implies prices could move higher in order to keep inventory on hand. While not forecasting this to occur it is a real and distinct possibility. On the other hand, while becoming tight, 1.7 billion bushels of corn carry out is probably not enough to suggest rationing unless there is a wholesale reduction in southern Hemisphere production. Still, tighter carry out numbers make for a more sensitive market and price volatility.

Marketing decisions are probably not getting easier. In fact, bull markets often make selling or buying decisions more challenging and stressful. To help alleviate stressful marketing decisions, the best approach is likely to be one of balance between cash sales, re-ownership and using put options to establish price floors while leaving inventory on priced. Connect with your advisor to have in-depth and thorough conversation on how they can help you achieve this goal of being balanced. Marketing is ongoing and needs adjusting continuously, especially in volatile markets.

If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 444.

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.

Author

Bryan Doherty