Market telling corn, soybean farmers to sell

It wasn’t just political pollsters whose estimates and projections proved to be in great need of adjustment this season.

The U.S. Department of Agriculture lowered yield estimates of both corn and soybeans from a month ago as a resurgent China’s activities on grain markets pushed the prices for both further upward.

James Mintert, director of Purdue University’s Center for Commercial Agriculture, said market signals are strongly urging farmers to sell rather than store both beans and corn. Mintert’s presentation was part of the November Corn & Soybean Outlook Update presented by the Purdue Center for Commercial Agricultures, given Nov. 11. His market outlook discussion was assisted by Nathanael Thompson, assistant professor in Purdue’s Department of Ag Economics.

Corn yields drop

The USDA reduced corn yield estimates more than analysts expected, said Mintert, by 2.6 bushels per acre to 175.8 bushels per acre. That average yield decrease held across the northern Corn Belt, although southern states were not as affected. Meanwhile, corn exports increased by 375 million bushels. Feed usage was reduced by 75 million bushels. Total corn production stood at 154.51 billion bushels, down by 465 bushels from estimates of just a month earlier. The drop was way below industry expectations, and probably reflected the impact of both the August derecho winds and the late-season dry conditions.

Despite the drop in yields, said Mintert, “by historical standards, this is still a large corn crop. This is not a short crop year like 2012.” Instead, he said, supplies are being tightened from the demand side—especially China. He said the magnitude of corn exports also surprised analysts. Export estimates were raised by 325 million bushels, to a record total of 2.65 billion bushels.

Corn ending stocks were revised downward by 465 million bushels from estimates of a month ago, to a total of 1.7 billion bushels—on par with those of 2008 and 2014. As recently as June, the USDA had estimated carryover stocks at 3.32 billion bushels. “I don’t think anybody back in June or July thought this was possible,” said Mintert.

USDA bumped up its price estimate to $4 a bushel from $3.60 a month ago. Thompson discussed storage opportunities based on his research in central Indiana. Despite the fact that it’s not a true short crop year, the market is incentivizing farmers to sell now rather than store, as it does in a short crop year. Thompson said that by July, his research showed about a $0.20 spread between the current market price and the price farmers needed to get for stored corn to break even or better.

Soybean yields also down

Soybean yields also decreased from earlier projections across the upper Midwest, about 1.2 bushels per acre on average, while several Southern states saw yield increases. “There was more impact [to soybeans] from the drought than industry thought,” Mintert commented. However, even after soybean production estimate was adjusted down by 98 million bushels to a total of 4.17 billion bushels, this year’s crop remained one of the highest yield totals ever, up from last year’s 3.55 billion bushels.

The current soybean carryover estimate into the 2021 crop year was 198 million bushels, down from 610 million bushels as recently as August—almost a 70% reduction. “I don’t recall a year when we’ve seen that dramatic a change when it wasn’t a major drought year,” said Mintert. As a percentage of total production, ending stocks were only 4%. Last year they stood at 13%, and were at 23% the previous year. The price estimate was bumped up to $10 per bushel, the highest since 2013.

Based on his analysis of central Indiana bid prices, Thompson said there was less incentive to store beans than corn.

Both Mintert and Thompson agreed that storing some grains as a hedging device still made sense, even though that strategy carries more risks in a market like the current one. “Unhedged storage could be risky,” said Thompson. “The futures market is not offering a lot for unhedged storage.” The outlook for stored unhedged soybeans was more favorable than for corn. Earnings per acre were also greater for soybeans. The USDA is expecting an increase in planted soy acres next year, said Mintert, with about 6 million more acres planted in beans than this year.

As for what’s driving China’s commodities push, observers note that China is taking advantage of the devastation of its swineherd last year by an epidemic of swine flu to completely revamp and modernize its hog-raising operations in one swoop. That means not just rebuilding its herds, but buying out and consolidating smaller producers and building bigger, more efficient hog raising and processing centers like those in the U.S. It also means switching more herds to coarse grain feeds rather than swill. According to some experts, swill fed up to 50% of China’s pigs before the pandemic.

David Murray can be reached at [email protected].