Last month I talked about the importance of ending stocks in terms of grain marketing. Remember, if the perception is that the ending stocks number is getting smaller, then grain prices will often times rally higher.
In the Sept. 30 quarterly stocks report, the U.S. Department of Agriculture did indeed drop ending stocks for corn and soybeans, which immediately lifted prices higher. This report was significant as it sets the set stage for the coming months in terms of grain prices. Let’s take a closer look at both commodities:
In the quarterly stocks report, U.S. stocks for corn were down 1% from one year ago, which was a bigger drop than trade had anticipated. According to the USDA, “Old crop corn stocks in all positions on Sept. 1, 2019 totaled 2.11 billion bushels, down 1 percent from Sept. 1, 2018.” This was the smallest September quarterly stocks report number for corn since the 2016-17 marketing year. The reason this is significant is because this suggests that demand for the past three months was slightly stronger than what many had expected. This sets the stage going forward as we continue to monitor ethanol demand, feed demand and export demand in upcoming monthly USDA World Agricultural Supply and Demand Estimates report.
As of the Sept. 12, USDA report, total U.S. demand for corn for the 2019-20 marketing year was pegged at 14.1 billion bushels. It seems likely that yield will also be reduced in upcoming USDA reports. Early yield that we are hearing suggests that yield could be as much as 10% lower than one year ago, which would put U.S. corn yield closer to 160 bushels per acre, sharply lower than the current USDA estimate of 168.2 bushels per acre. If yield does come in closer to 160 bushels per acre, then ending stocks would continue to fall, and come in closer to 1.5 billion bushels of carryout, which would be the tightest in over six years.
In the Sept. 30 report, also surprising was news that the soybean stocks were smaller than anticipated. According to the USDA, “Old crop soybeans stored in all positions on Sept. 1, 2019 totaled 913 million bushels” with pre-report estimates closer to 940 to 1,001 million bushels. This was a very welcome surprise announcement, which gave fuel to the soybean rally, allowing for soybean futures to finish 23 cents higher that day. Again, this is significant as it suggests that soybean demand has been strong this summer.
This is friendly going forward as we continue to monitor crush demand and export demand in upcoming monthly USDA WASDE reports. As of the Sept. 12, USDA report, the total U.S. demand for soybeans for the 2019-20 marketing year is pegged at 4.01 billion bushels. Like corn, it seems highly probable that soybean yield will also be reduced in upcoming USDA reports. Early yields that we are hearing suggests that yield could be as much as 10% lower than one year ago, which would put U.S. soybean yield closer to 45-46 bushels per acre, sharply lower than the current USDA estimate of 47.9 bushels per acre. If yield does come in closer to 45 bushels per acre, then ending stocks would come in closer to 440 million bushels, which would be the tightest in over three years, and down from nearly 1 billion bushels, just over one year ago.
Please continue to stay vigilant over the coming weeks and months. This marketplace (with the likely smaller yield and delayed harvest) may be setting itself up in a similar style to the fall rally in 1993 and 1995. Much can change with weather, much can change with price, and there will likely be opportunities to price grain at higher levels along the way.
If you have questions, you can reach Naomi at firstname.lastname@example.org or on twitter @naomiblohm.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa Public Television series “Market to Market.” She can be reached at email@example.com.