Corn and soybean prices intrigue analysts
KANSAS CITY, MO. – Corn and soybean futures hold up despite recent forecasts from the United States Department of Agriculture (USDA) that the two 2021 harvests will be the second largest in history, and there are several bearish indicators additional which suggest that the prices should be lower.
Instead, corn, soybean and wheat futures have traded at multi-year highs this year, including winter wheat contracts near Kansas City and Chicago reaching multi-year highs and with the Minneapolis spring wheat future setting an 11-year high in the first half of November. .
Some analysts are unable to explain the bullish sentiment in the corn and soybean markets given strong production and the outlook for declining US exports due to favorable weather conditions in South America for both crops with the key harvest of Brazilian soybeans that will hit the export market in a few months. months should be a record. The 16-month high in the value of the US dollar last week adds even more decline to exports as it makes US grains more expensive for foreign buyers. China’s purchases of US soybeans and especially corn have been slow compared to the start of the year, another downward factor in the markets.
The USDA in its November crop production report estimated 2021 corn production at 15,062 million bushels, up 0.3% from its October forecast, up 7% from to 2020 and the second highest on record after 15,148 million bushels in 2016. Average yield based on Nov Conditions of .1 were forecast at an all-time high of 177 bushels per acre, up 0.5 bushels from October and 5.6 bushels from 2020. The harvested area for grain was forecast at 85.1 million acres, unchanged from previous forecasts and up 3% from 2020.
USDA corn production and average yield forecast were both slightly above average trade expectations, but corn futures prices rose further after the reports.
“If you had said in August that we would have a record corn yield, I would have said you were crazy,” said Paul Meyers, vice president, commodity analysis, Foresight Commodity Services Inc., referring in party to concerns about drought in some key growing areas during the summer.
In addition to the bountiful harvest, Meyers said other bearish characteristics of the corn market included a declining export outlook, high corn production in South America and a decline in the US herd, although he had noted that aggregate demand has held up well. Corn price support has increased the use of corn for ethanol, possible concerns over La Niña over South American production, and ideas that American farmers could plant fewer acres of corn in 2022 due to significantly higher production costs and the prices of fertilizers in particular.
The USDA in its World Agricultural Supply and Demand Estimates (WASDE) report of November 9 projected the carryover of corn on September 1, 2022, at 1,493 million bushels, up 21% from this year. Meyers expects the delay to 2022 could increase by an additional 100 million bushels if exports are cut in subsequent WASDE reports, which he expects.
“I thought we would see more weakness with a 1.5 billion bushel carry-over,” Meyers said. He expects March 2022 corn futures to fall into the $ 5.30 to $ 5.40 a bushel range, down from around $ 5.70 last week, “especially given the weather. South America is supportive “.
“It’s a puzzle,” he added. “Not just for corn, but also for soybeans. “
U.S. soybean production in 2021 was forecast at 4,425 million bushels, down 0.5% from October but up 5% and the second highest on record after 4,428 million bushels in 2018. The average yield based on November 1st conditions was forecast at 51.2 bushels per acre, down 0.3 bushels from October but up 0.2 bushels from 2020. The expected average yield would also be the second highest on record. Harvested area was forecast at 86.4 million acres, unchanged from previous forecasts but up 5% from 2020.
The USDA has forecast the postponement of US soybeans on September 1, 2022, to 340 million bushels, up 33% from 2021. A drop of 40 million bushels from October in exports forecast for 2021-22 more than offset a 23 million bushel reduction in estimated soybean production in 2021.
Both soybean production and USDA average yield forecast were below average trade expectations.
“I think the market was tilting the wrong way” on the expectations of the USDA soybean numbers, expecting higher production and yield but getting lower estimates for both, Meyers said.
“The data does not add up to $ 12.50 a bushel of soybeans,” Meyers said. He expects soybean futures in March to trade in the $ 12 a bushel zone. That would equate to soybean oil futures of around 56 to 57 a pound, down from around 57 currently, as oil’s share of soybean grinding has recently declined.
Wheat futures, on the other hand, provide additional support to corn and soybean futures due to declining global wheat supplies. Wheat supply and use forecasts, especially global figures, have become more optimistic. The USDA in its November 9 WASDE report forecast the global ending wheat stocks for 2021-22 at 277.18 million tonnes, down 4.2% from 2020-21.
The maize crop had been harvested at 91% as of Nov. 14, behind 94% at the same time last year but ahead of the 2016-2020 average of 86%, the USDA said in its weekly Crop Progress report. The soybean crop was 92% combined on the same date, slightly below 95% a year ago and 93% on average over five years. The USDA does not update the corn and soybean production estimates in December, so the next update will be in the 2021 Crop Production Summary in early January.
With the two largest US harvests largely “in the bin,” or of known size, the USDA forecast is unlikely to see any major revisions in January. Thus, changes in the market will require increased demand or adverse weather conditions in South America to reduce the outlook for corn and soybean supplies.
“I don’t have a good explanation as to why the prices haven’t come down further,” Meyers said, noting that “the bulls may be counting on bad weather in South America.”