The rally in the grains continues with soybeans putting in an impressive performance. For the past six weeks soybeans have posted gains of $1.61, corn has gained 54.5 cents, and Minneapolis wheat is up 21.75 cents. The question is: when will the rally end? It seems the only news that is circulating is market friendly news.
The frost that hit the Northern Plains Sept. 13 to 15 was a lot more damaging than most expected. The frost will certainly lower the potential soybean yield for North Dakota, South Dakota and Minnesota. It is important to note the Sept. 11 Crop Production report data was compiled before the frost so that event will not show up until the October report.
The Sept. 11 Crop Production report was a nonevent for wheat as the U.S. Department of Agriculture left all numbers unchanged. The trade was expecting 2020 stocks to drop 1 million bushels, but instead it was left unchanged. USDA is set to release their Small Grain Summary Report on Sept. 30. This report is the final production estimate for the small gains.
The report was neutral at best for corn as most of the numbers came in above expectations. As expected, yield was cut, but only 3.3 bushels to 178.5 bushels and harvested acreage was reduced by 500,000 acres (less than expected). That combined to put corn production at 14.9 billion bushels, well off last month but above expectations.
And in true fashion, if production is cut, demand has to see a reduction as well. USDA cut feed demand and ethanol demand by 100 million bushels each, but increased exports by 100 million bushels. The increase in exports is due to rumors that China will need to import 30 million metric tons of corn. Surging corn prices in Brazil due to tight supplies have resulted in the U.S. becoming the cheapest corn market in the world. To date, corn sales are estimated at 805 million bushels versus 341 million bushels last year.
The soybean numbers were a little friendlier, but export demand as well as the frost is helping soybeans rally above $10. It appears the damage from the early September frosts were much worse than expected but it will take a few weeks to assess the damage. As far as the September Crop Production report was concerned, USDA made no changes to acreage, but yield was decreased 1.4 bushels per acre To 51.9 bushels.
In the end, soybean stocks were lowered but came in 5 million bushels higher than expected. Like corn, U.S. soybeans are the cheapest in the world as Brazil’s prices are starting to push higher in an attempt to ration their remaining supply. This means the U.S. will be the only game in town for soybean exports for the next three months. Exports to date are at 1.19 billion bushels versus 411 million bushels last year. To date, China has bought 17.4 million metric tons of U.S. soybeans versus 530,000 metric tons last year.
Farm Service Agency also updated their acreage estimates on Sept. 11. As of Aug. 31, FSA increased the planted and failed acreage by 15.7 million acres and increased prevented planting acreage 1.1 million to 10.1 million. That is the third highest prevented planting acreage in history. Corn prevented planting for 2020 was estimated at 6.078 million acres, up from 5.38 million last month.
Monday afternoon’s Crop Progress report was neutral to the grains as it appears the crop ratings have stabilized in most states. North Dakota took the biggest hit in the crop ratings department due to last week’s frost. It will take another week to see the true effects of the frost, but it does appear that the soybeans are going to see some sort of production hit.
As for the crop ratings, corn’s rating dropped 1% to 60% (1% less than expected). The only state that reported a better rating was Illinois (up 2%) due to the recent rains. All of the other states showed their crop ratings as slipping slightly. North Dakota took the largest hit, dropping 6% due to last week’s frost. As of Sept. 13, 41% of the corn crop is mature, which is slightly ahead of the average of 32%.
Soybean’s crop rating came in at 63% good/excellent, 2% lower than expected by the trade. North Dakota's crop took a major hit from the frost. Crop ratings for North Dakota showed a decline of 11%. And it is likely going to decrease again next week.
Wheat continues to be the laggard of the grain complex with most of the selling tied to poor demand. A weaker U.S. dollar and expectations that Canada’s crop was hurt by frost helped wheat push higher. But most of the push was due to spill-over support from the higher corn and soybean complex.
Farm Futures is estimating 2021 winter wheat acreage at 31.3 million, up from 30.55 million last year. This could be the first time in eight years that wheat acreage increases. Other spring wheat acreage is estimated at 11.6 million versus 12.2 million this year.
Corn traded with gains this week, but in a more conservative manner than soybeans. Corn does not have the same potential production cuts as soybeans, but traders are concerned that corn demand could explode if certain events fall into place. One is inflation. The other is expanded export business as China’s corn price has hit a five-year high due to tight supplies. Ideas that demand from China will increase due to the recent typhoons added strength as it is estimated the typhoons have caused production losses of 5 million to 10 million metric tons. Prices in Brazil have also seen a significant increase.
Soybean have been by far the best performer recently with support coming from heavy fund buying as soybeans have pushed to new contract highs from strong demand and production concerns. Traders are convinced USDA will cut soybean production in the October report. National Oilseed Processors Association reported August crush at a nine-month low at 165.055 million bushels, much lower than the trade expected.
Weather forecasts are turning to be more bearish grains than anything. The forecast for the remainder of September is calling for the major growing regions of the U.S. to see above normal temperatures and below normal precipitation. This will not only allow for good planting conditions (especially after last week’s rain in the Southern Plains) but it will allow for mature crops to dry down and help advance harvest progress of corn and soybeans.
In outside news, the House should be returning to Washington. Congress has their hands full as they are going to have to get a bill passed or pass a continuing resolution to fund the government. The current budget expires on Sept. 30, and if some sort of spending bill is not passed by that time, the government will shut down, which is something neither side wants to see just before an election. There are reports the two sides have agreed on a continuing resolution, which will keep levels of spending unchanged through the election. So, in other words, they are kicking the can down the road once again.
“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”