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The August
USDA World Agricultural Supply and Demand (WASDE) report was anxiously
awaited and largely anticipated. Some uncertainty about flood-damaged,
late-planted corn and soybeans was removed when the USDA estimated that
farmers would harvest 79.3 million acres of corn and 73.3 million acres of
soybeans this year.
Corn yield
was boosted to 155 bushels per acre, an unprecedented 6.6 bushels per acre
increase over last month’s report. If realized, that would result in a
harvest of 12.3 billion bushels and give a comfortable level of ending
stocks at 1.1 billion bushels. However, following release of the August
WASDE, corn price increased rather than declined as might have been expected
after a bearish report. Two conclusions could be drawn: 1) traders had taken
price down too low as they discounted a big increase in corn yield; or more
likely, 2) they were skeptical about the USDA’s yield estimate. No one
disputes the USDA’s approach in estimating yield. This was the first report
of the growing season which used actual field surveys to estimate corn
yield. But some analysts are saying that because the corn crop is so far
behind in maturity, the USDA’s ear size and weight measurements may not have
given an accurate estimate of final yield. Plus, bird’s-eye reports from
farmers who flew over corn fields indicated spotty conditions with many
drowned out areas and evidence of nitrogen deficiency due to leaching.
The August
WASDE was not so optimistic for soybeans; at least not for soybeans buyers.
Although projected acres planted and harvested were increased slightly, the
USDA lowered the yield projection by 1.1 bushels per acre to 40.5, well
below trend line yield. The reasons were the late planting and slow
development of this year’s crop. Pod set as reported at the time of the
WASDE release was 19 percent behind the five year average. Of most
importance in the WASDE report was the ending stocks estimate of 135 million
bushels, exactly the same as this year when the soybean trade is sweeping
out the bottoms of bins to keep on operating. After a four dollar per bushel
price drop in the weeks before the WASDE release, soybeans were looking for
a reason to rally; and rally they did!
The August
WASDE report was slightly bearish for wheat due to increased global
production and ending stocks and increased supply of soft red wheat
domestically. But wheat price, which did not experience a pre-report decline
as serious as corn or soybeans, moved up on reports from overseas of strong
global demands for feed wheat and to replenish wheat stocks in countries
around the world. Demand strengthened for high quality milling wheat, such
as was harvested in Kansas this year, when news out of Ukraine indicated
only 30 to 40 percent of their wheat would be suitable for milling and
baking purposes. Even Iran, which is not on the best terms with the United
States at the moment, purchased U.S. wheat.
It has been
a week or so since the August WASDE report was released and the commodities
have made up more lost ground. Wheat has recovered about one-half; and corn
and soybeans have each regained about one-third of the price lost in late
July and early August when oil price dropped and the dollar strengthened.
The Russian invasion of the country of Georgia has put a risk premium back
into the oil price and news of a weaker U.S. economy has caused the dollar
to start falling again.
But even if
these external factors turn around again, the prices of the major grains and
oilseed are likely to remain strong throughout the fall and into the winter.
For wheat, news about the Southern Hemisphere crop is bullish. Both
Argentina and Australia are experiencing dry soil conditions as wheat moves
into the jointing stage. Needed rains may come, but until now have been
sparse; just enough to keep hope alive. In addition, parts of Argentina have
been hit by below freezing temperatures.
Of most
concern to the grain trade are the U.S. corn and soybean crops. It has been
dry in the Corn Belt for the past two weeks. It has not been especially
warm, but the yield potentials have probably declined from lack of moisture.
Also, the northern tier of Corn Belt states may have 30 days of growing
season left if frost dates hold true this year. First hand reports from
agricultural economists from those states indicate that will not be enough
time for full crop maturity. Late planting and slow crop development because
of cool temperatures have put both corn and soybeans; especially soybeans,
in jeopardy. A cooler than normal August and uncharacteristic, periodic
frontal systems moving down from the northwest across the Plains States into
the Corn Belt have some predicting earlier than normal first frost dates.
This year, uncertainty
about fall harvested crops will remain until the combines start rolling and
grain trucks cross the scales. Until then, look for continued price
volatility in nervous markets. |