Grain prices appear to be itching to move higher in the weeks ahead given the prospects for slightly smaller crops and a smaller carryout than USDA has been forecasting for both corn and soybeans.
The 2015 corn and soybean crops could be 1 to 3 percent less than USDA estimated in July and the carryout for both crops could be 100 million bushels less than the July USDA report, according to farmers responding to the Farm Futures August Production Survey.
Ordinarily, that coupled with any kind of weather problems for the remainder of the growing season would lead to higher grain futures, says Bryce Knorr, senior grain market analyst for Farm Futures. But these are not ordinary times, Knorr noted in comments during the University of Arkansas’ Food and Agribusiness Webinar Wednesday (Aug. 5).
“When you look at corn, carryout could drop all the way down to under 1.4 billion bushels,” says Knorr. “Now in a perfect world what that means is $4.50 cash corn for an average cash corn price, and a futures market rally with a potential of 5 bucks.
“The trouble is we aren’t in a perfect world, and there are a lot of headwinds coming from the outside markets that are depressing prices. And we seem to be in somewhat of a deflationary spiral.” (To watch a video of Knorr’s presentation, go to https://www.youtube.com/watch?v=y0jwF09bEpg&feature=youtu.be.)
The 1,300 growers surveyed by Farm Futures put the 2015 U.S. corn crop at 13.37 billion bushels, down 6 percent from last year’s record and 1.2 percent below USDA’s July estimate, which is a product of the government’s June 30 Acreage Report and trend yields. Growers indicated they would harvest 730,000 fewer acres, and they expect yields to be lower at 166.3 bushels per acre than last year’s 171.0.
Soybeans 3 percent lower
Soybean production could reach 3.77 billion bushels, 5.1 percent below last year and 3 percent lower than USDA’s current forecast. The average yield from growers’ estimate would be 45.7 bushels per acre, 0.3 percent less than USDA’s statistical trend. On the other hand, harvested acreage expected by growers would be 2 million below USDA’s June 30 forecast.
To read more about Farm Futures’ August Production Survey, visit http://farmfutures.com/story-farm-futures-survey-weather-cuts-corn-soybean-production-17-130632.
“The big change will come, in our opinion due to harvested acres falling from both corn and soybeans,” says Knorr. “Yields will be down only slightly, and carryout should be 100 million bushels less than USDA’s estimate.”
Whether that makes any difference to prices will be difficult to determine due to the volatile world market not only for commodities but currencies and stocks, according to Knorr.
“Over the years the price curves for both corn and soybeans, particularly corn, seems to change about every five to seven years,” says Knorr. “One of these changes, I think, is underway now, making it very difficult to forecast just what these ending stocks forecasts actually mean for prices down the road.”
He said farmers can see the impact of those changes in current prices. Futures have been consolidating since the big price break of a few days ago and are likely to hold that range ahead of USDA’s first survey-based Crop Production Report on Aug. 12.
Corn down to $3.47?
“But the gap that we suffered the beginning of last week (July 27) projects all the way down to $3.47 per bushel on the December corn chart,” he notes. “So we’ve got a lot of downside potential if these markets turn bearish or stay bearish, I should say.”
For soybeans, Knorr thinks demand looks good, but possibly not as good as 2014-15. “Exports are what we have to watch out for – I think there’s a potential for exports to take a nose dive – and that could keep ending stocks from tightening too much.”
The midpoint of Knorr’s projection is about 335 million bushels, “but again that suggests a cash price of $10. Futures price is even higher with the potential for rallies all the way to $11 or higher. We’re nowhere near that territory now. Again, I think this is due to the disinflationary environment we find ourselves in.”
Why would exports nosedive? As in so many of the commodity markets U.S. farmers participate in, a giant shadow is cast by China, which is involved with two-thirds of the world’s soybean trade.
“In the past, we’ve seen a strong correlation between Chinese economic growth, as measured by GDP, and their imports of soybeans,” says Knorr. “When the GDP growth has slowed down, we have seen their purchases of soybeans also start to slow down.”
China’s growth reportedly has fallen to 7 percent, but that may be optimistic. The country’s manufacturing sector took another hit from weak data in recent days. “I think there’s a real question as to whether or not that will happen,” Knorr said. “The jury is definitely still out on that one.”
To read more and see links to other videos of webinars on the University of Arkansas Food and Agribusiness website, go to http://www.uaex.edu/farm-ranch/economics-marketing/food-agribusiness-webinars/.