USDA's October numbers are out: soybean production projections remain virtually unchanged, corn production is up slightly.
Specifically, the National Agricultural Statistics Service estimates 2002 corn production to hit 8.97 billion bushels, which is up 1 percent from last month, but down 6 percent from last year. Soybean production, the report says, is expected to reach 2.65 billion bushels. That figure is essentially the same as last month's estimate, but 8 percent below 2001 production estimates. Wheat estimates were down slightly over last month's numbers.
“Today's report held a little bit of everything for everybody. Considering the price declines seen recently, I have to characterize this report as somewhat friendly. We could see a post-harvest rally as we head into November and December,” Dan Basse, president of Ag Research Company in Chicago said at a Chicago Board of Trade press briefing.
Adds Greg Grow, a broker with R.J. O'Brien in Chicago, “The numbers are somewhat supporting, with corn a little bit of a laggard.”
Due to ending stocks numbers, Grow says, “We will be a world very dependent on a very large South American crop. Any shortfalls there for any crops falling below expectations will bring additional trade to us in the global market, which would be price friendly to all three markets.”
The futures market, says Basse, will be focused on ending stocks numbers and South American weather in the coming months. “If we return to normal weather next summer, we're back in the same soup bowl we've been in. We do have some fun ahead of us, though between now and then.”
Both Grow and Basse expect soybean prices to jump after USDA's Oct. 11 crop report, with Basse looking for a 3-cent to 7-cent upside and Grow predicting a 5-cent to 10-cent rise in prices the day of the report's release.
Soybean stocks are still historically tight, and South American weather will become very critical to the Chicago Board of Trade, according to Basse. “We need every bushel in this tenuous supply situation.”
Grow says, “Soybean prices have dropped 50 to 60 cents from September, and we basically have the same production we had then. Supply is in a very tight situation domestically, which will make the world market dependent on a good South American crop to maintain prices. It will be interesting to see how it all plays out.”
Both Basse and Grow agree with USDA's sustained 2002 yield prediction of 37 bushels per acre. Despite much higher yield averages in localized areas, soybean yields are variable across country.
Grow says, “I think the USDA is on it at 37 bushels per acre, and I would run with that number.”
If the 37-bushel-per-acre yield average is realized, USDA says, it would be the lowest production average since 1999. Yield forecasts increased from last month in the central Great Plains, upper and lower Mississippi Valley and the Tennessee Valley as September weather provided beneficial showers. However, yield estimates declined in the northern Great Plains and eastern Corn Belt, due to above normal temperatures, the USDA report says.
According to the Oct. 11 USDA Crop Production Report, corn yields are expected to average 127.2 bushels per acre, up 1.8 bushels from September but down 11 bushels from last year.
“If realized, corn production would be at the lowest level since 1995. Yields are lower than last month in the eastern Corn Belt as farmers are starting to record harvested yields and are realizing the overall effect the late spring plantings and summer drought conditions had on the crop,” the report says. “However, expected yields are up sharply in Iowa and Minnesota as conditions have been ideal during the entire growing season.”
Basse says he is “troubled” by the yield report, and believes the corn trend line is too low. “The report was pretty straight forward, and with corn ending stocks still low, I imagine we'll see some type of post-harvest rally.”
Grow says that considering ending stock numbers, corn at $2.50 per bushel is trading at a fair market value. “I think corn has some value at this level,” he says.
With the possibilities of lower exports ahead, Grow expects corn to take a bit of a backseat role right now. “Some in the trade are pessimistic that USDA's export numbers are accurate. I'm of the opinion the export numbers are valid because the majority of our corn production is still consumed in this country.”
If export numbers do hold, Grow says, he is “friendly” to the market, but would temper his enthusiasm due to the China's entrance into the World Trade Organization and its competitive role with the United States. “I had hoped to see some actual purchases of corn by China, but that hasn't happened,” he says.
If exports falter, Grow says, the corn market will have less upper price potential and will become more subdued.
Basse says USDA's export numbers have stayed virtually level because of the portion of corn exports going to Canada. “USDA over the past three years has a history of overestimating export numbers and each year has had to go back and drop those numbers as they get closer to spring.”
Can December corn futures hold $2.50 based on these newly released USDA numbers? Fundamentally, yes, says Grow, but technically, the market is still weak. “If we can reverse the near-term downtrend, the selling will abate. Otherwise, fund-selling could continue and prices could break into the $2.40s.”
Basse doesn't believe corn will stay below $2.50 for any significant length of time, but it would take a strong export engine to take it much above the $2.70 to $2.85 price a domestic rally could fuel.
Ending stocks for wheat are at the lowest level since 1973. If they were to drop another 30 million bushels, which Basse thinks is possible, they would be at the lowest level ever.
“Wheatitis hasn't left us yet at the Chicago Board of Trade due to these historically low numbers and the need for higher prices,” Basse says.
Grow agrees the wheat market needs a big push in acreage this year to maintain ending stock levels.
Will wheat imports continue to make their way to the United States under current market conditions? “At $4.40, where wheat prices were six weeks ago, that was definitely a factor. However, now we're back into the $3.60 price level, and I don't expect that to play as major a role,” Basse says.
Basse adds, “U.S. farmers need to understand that we are in a global market. Globalization has changed and lowered price.”
Grow says there may also be some apprehension in the grain markets due to tensions with Iraq. “It's why markets have been a little subdued. A global conflict of this type, at least initially, is usually restrictive of trade. It's very hard for me to figure out the politics of how this will end up, but I expect there to be some near term constricting of trade.”
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