While the USDA reports released on Monday sent shockwaves through the corn and soybean markets, the debate over actual planted acres is over — as far as the markets are concerned, according to Todd Hubbs, ag economist for the Department of Agricultural and Consumer Economics at the University of Illinois.
Rather than pinning hopes on a market rebound based on planted acres, Hubbs said the next potential pivot point for a bullish market will be dictated on actual yields once the combines start rolling.
During a webinar presentation on Tuesday, Hubbs questioned USDA’s rather optimistic yield projections based on the number of corn and soybean acres that were planted in June, suggesting that USDA’s figures didn’t fully account for the agronomic impact to yields of late plantings.
While USDA lowered harvested corn acres to 82 million acres, it was above expectations of 80 million acres. Corn planted acreage totaled 90 million acres. When combined with a Farm Service Agency projection of 11.2 million acres of prevent plant corn, the total corn base appears to exceed 101 million acres in 2019.
“The U.S. corn yield forecast of 169.5 bushels per acre exceeded trade expectations by 4.6 bushels. The projected corn crop is 700 million bushels larger than the average trade guess at 13.9 billion bushels,” Hubbs said.
As expected due to poor crop condition ratings, the eastern Corn Belt yield projections came in at lower levels than last year. Illinois (181 bushels per acre), Ohio (160), and Indiana (166) corn yield forecasts currently sit more than 20 bushels per acre lower.
“Current field conditions in many areas indicate the yield projection may not see growth as we move toward harvest,” Hubbs said. “In the last 10 years, USDA’s August yield forecast came in below and above the final yield estimate five times each.”
Turning to soybeans, USDA’s forecast of 3.68 billion bushels is 120 million bushels lower than the average trade guess, according to Hubbs. Soybean planted acreage totaled 76.7 million acres, down 3.34 million acres from last year. Harvested acreage came in at 75.9 million acres with an estimated 4.35 million acres of prevent plant acres.
“The U.S. average soybean yield forecast of 48.5 bushels showed no change from the July forecast,” Hubbs said. “Yield forecasts in many states across the Corn Belt reflected the poor growing conditions this summer. Iowa (55 bushels per acre) and Illinois (55) yield forecasts came down 2 and 10 bushels per acre from last year respectively.”
Over the last decade, the USDA August yield forecast has been lower than the final national soybean yield estimate only two times. The USDA has not produced an August soybean yield forecast higher than one bushel above the final soybean yield since 2003, when it came in six bushels above than the final yield, according to Hubbs.
Demand Side Prospects?
Old crop year ending stocks estimate came in at 2.36 billion bushels, which is up 20 million bushels from the July estimate. Ethanol use fell 25 million bushels on weaker production levels. Corn exports continue to show weakness and may not reach the current projection of 2.1 billion bushels.
Feed and residual use remain uncertain, with 681 million bushels necessary to meet the projection of 5.275 billion bushels. An expectation of ending stocks for the current marketing year above the present projection is reasonable at this point based on recent consumption trends.
For the 2019-20 marketing year, the USDA decreased corn for ethanol use and exports by 25 and 100 million bushels, respectively. The forecast for 2019-20 ending stocks sits at 2.181 billion bushels, up 170 million bushels.
“The average farm price for the year ahead came in at $3.60, down 10 cents from the July report,” Hubbs said. “Given the current production uncertainty, an expectation of lower ending stocks for the next marketing year seems prudent. The potential for lower yield appears acute, particularly in the eastern Corn Belt.”
For old crop soybeans, the USDA decreased the soybean crush projection by 20 million bushels to 2.065 billion bushels and maintained exports at 1.7 billion bushels. The pace of domestic crush and exports currently suggests these projections will hold for this marketing year. The forecast for ending stocks during the current marketing year increased by 20 million bushels to 1.07 billion bushels.
Forecasts for the 2019-20 marketing year decreased ending stocks by 104 million bushels to 755 on the lower production levels. The forecast for domestic soybean crush increased 15 million bushels to 2.06 billion bushels. Soybean export forecasts decreased by 100 million bushels reflecting recent development in trade negotiations and export sales pace.
“The forecast for the marketing year average price stayed at $8.40 per bushel,” Hubbs said. “The potential for lower soybean consumption than current USDA forecasts remains linked to trade issues over the next year.”
Soybean exports will depend on continued growth in soybean exports to non-Chinese sources. The potential for South American soybean production to come in 150 million bushels larger than the last crop seems likely. Combining the current soybean production levels in the U.S. and continuing trade issues, average farm prices for soybeans appear set for continued weakness in the 2019-20 marketing year.
The USDA corn and soybean production forecasts will be updated on Sept. 12.