Grain marketing commentary
Agriculture Business Specialist
University of Missouri Extension
September 19, 2016
On Friday August 12, USDA released their monthly supply and demand report and their first in-field yield survey. The report was considered negative due to the big jump in yield and production. The corn yield was projected at a record 175.1 bushels per acre. The pre-report estimate was 170.6 bu/ac and the July trend line adjusted yield was 168.0 bu/ac. Production was projected at 15.1 billion bushels, 400 million bushels above the pre-report estimate and the ending stocks were also above the pre-report estimate at 2.4 billion bushels.
The demand was bullish as corn use was increased 300 million bushels from the July report based on a 175-million-bushel increase in feed and residual and 125-million-bushel increase in exports. The season average price for the new crop 2016-17 marketing year was projected at $3.15 down 25 cents from July and the old crop 2015-16 price was cut 5 cents to $3.60.
The world Supply and demand numbers were also considered negative. World ending stocks for the 2015-16 were increased 2.4 mmt to 209.3 and the new crop 2016-17 ending stocks were increased 12.4 mmt to 220.8.
You would think after this very negative report that corn prices on Friday would end up limit down. While the December futures did trade 8 cents lower, it rebounded quickly and closed the day up 1.25 cents at $3.33. There are several reasons given for the higher close. One is that the price action for the past several weeks indicated the trade was already trading a 175 bushel or greater crop. While the average trade guess was 170.6 bushels, there were many in the trade talking about a 175-bushel corn crop. Another reason is the big jump in demand and with the smaller Brazilian second crop production, it will open the door for more U.S. corn exports in the first half of the marketing year. Also in the 175-bushel yield projection, USDA was using a record ear weight. While this may be justified due to the good rainfall over most of the corn belt this summer, we did have some heat and dryness stress in June and warmer temperatures and especially night time temperatures compared to the last 3 years. This is why some in the trade think we may see USDA trim back the yield in future reports as they gather more data and especially ear weights.
This report projects a big crop and big ending stocks both in the U.S. and world. It is going to be important we reach these large demand numbers to keep ending stocks from growing. However, it is not unusual for corn to put in a low in August and have a seasonal rally into early September. Since 2000, the average bounce was 27 cents which would project to a $3.60 price target in December corn futures. Technically, December futures has support at $3.22 and resistance at $3.40 and every 10 cents higher. Also the price momentum indicators have turned positive after this report and this should help support prices from a technical standpoint. If you need to make harvest sales, this will be your opportunity to do some pricing.
In general, the USDA report was negative for new crop soybeans especially from the supply standpoint. New crop production came in at 4.1 billion bushels 119 million bushels above the trade guess and the yield at 48.9 bushels, 1.4 bushels per acre above the trade estimate. Ending stocks came in at 330 million bushels, 14 million above the trade estimate. But there were some bullish numbers in the report. Old crop soybean ending stocks were down 95 million bushels to 256 million with a 10-million-bushel increase in crush and 85 million bushel increase in exports. For new crop, use was increased 45 million bushels with a 15 million bushel increase in crush and 30 million increase in exports. World ending stocks for 2015-16 were up 1.0 mmt to 73.0 and new crop endng stocks were increased 4.1 mmt to 71.2 mmt.
Just as in corn, there is still some uncertainly in the yield. However, for soybeans we still have time in the growing season to add or subtract bushels. Also, seasonally it is not unusual for soybeans to put in a low in after the August report and have a rebound in prices into September. Since 2000, the average bounce was 75 cents which would project to a $10.57 price target in November soybean futures.
Technically, November futures has support at the 200 day moving average at $9.60 which was the low from Friday’s report. Resistance is at $10.00, $10.20, $10.40 and $10.60.
Just as in corn, if you need to make some sales for harvest delivery I would take advantage of potential rallies between now and September.
There were no big changes in the wheat supply and demand tables. Production was bumped up 60 million bushels based on a 1.3-bushel increase in yield. However, use was increased 60 million bushels with a 30 million bushel increase in feed, 5 million bushel increase in food, seed and residual, and 25 million bushel increase in exports. World ending stocks were trimmed 2.6 mmt for 2015-16 and 1.0 mmt for 2016-17.
Technically, July 2017 wheat futures has support at $4.70 from the low on Friday with strong resistance from $5.00 to $5.10.
The 2016 harvest acres were increased 230,000 acres to 9.53 million acres while planted acres remained unchanged at 10.02 million acres. The yield was cut 15 pounds to 800 pounds per acre. The result was ending stocks were increased slightly to 4.70 million bales.
It is important for a cotton producer to remain in close contact with his cotton buyer to get the most current price quotes.
Technically, December futures is trying to find support at 70 cents with resistance back in the 73.0 to 76.0 cent price range. Cotton prices have rallied on good exports but turned lower on some good rains in Texas. We will have to see how this weekend’s flooding impacts yields.
New crop ending stocks were trimmed 2.2 million cwt to 54.6. However, world ending stocks increased based on a drop in domestic use in the 2015-16 crop.
For cash rice quotes, contact your rice buyer to get the most current price quotes and cash price outlook.
Technically, November rice futures are trying to put in a low around $9.60. If it can hold, the first price resistance will be at the 50% retracement at $10.40 and then at $11.20.