Soybean, Corn Prices Plunge on USDA Report11/10/2016
USDA defied expectations Wednesday with a bearish report that sent markets reeling and made big crops even bigger.
USDA put corn and soybean yield and production at all- time highs, with a record corn yield of 175.3 bushels per acre and a record soybean yield of 52.5 bushels per acre.
The report caught analysts off-guard and markets plunged following its release. CBOT November soybeans dropped 24 cents in early trading and closed down 19 3/5 cents at $9.82. CBOT December corn fell 13 2/5 cents, closing at $3.40 2/5.
The outcome of the U.S. presidential election did not appear to influence the markets’ reaction, analysts sad, noting they did not move much before the report was issued. A stronger dollar also bore down on markets, they said.
“I don’t think anyone had this figured in. The trade was surprised with the increase to a new all-time high,” said Rich Nelson, chief strategist for Allendale, in McHenry, Ill.
The bearish report comes at a bearish time of year, with USDA looking at numbers as harvest results come in, Nelson pointed out. “This is accurate; these numbers can’t be discounted. You can’t argue against these numbers any more,” Nelson said, adding that the market will now be testing September lows in prices.
“The big surprise was soybeans, ” said Nelson, with USDA lowering domestic crush at the same time that it increased production estimates.
With the USDA raising the crop size and lowering domestic use, it’s a clear sign to the market that domestic use is not as strong as previously thought, and it adds to U.S. supply, Nelson said.
For other analysts, the record-high corn yield estimate was the report’s biggest surprise.
“The client producers I’m talking to in Ohio and Iowa said they didn’t come close to beating 2015 yields,” said Mike Zuzolo, president of Global Commodity Analytics. In Atchison, Kan. “I was not expecting corn to have as big carryover,” he said.
“The problem with soybeans, is it didn’t get the expected demand increase; in corn, it didn’t get demand increase in feed and exports,” Zuzolo observed.
However, Zuzolo said the larger-than-expected soybean carryover “was the worst of the three (crops),” with South American production gearing up.
Another analyst also said corn yield was the report’s biggest surprise, even though it trended with higher local yields.
“I am on a farm in south east North Dakota and I can confirm, the yield is spectacular,” said DuWayne Bosse, of Bolt Marketing in Britton, S.D.
Some analysts predicted market fundamentals would not stop lower market swings.
“The market, will be very highly technical … no one will stand in front of algorithm trades,” cautioned Zuzolo.
Although there is still potential for weather woes in South America to move market, with almost 500 million bushels of carryover in beans, it puts algorithmic trading more in control, he observed.
“If corn slips below $3.40, you could see erosion of 20 cents whether it makes sense fundamentally, ” he said. Likewise, if November soybeans fall below $9.51, it could go down 40 cents down easily, he noted.
So what should farmers do? They should store their corn on the farm and sell it on a cash basis, or save it to sell later, according to analysts. Producers also should buy corn and soybean hedges, they said.
“Farmers can still look to capture the carry in the market by selling on farm stored bushels out to next spring or summer,” advised Bosse. “Then if the market does indeed drop further, they can buy these bushels back,” he said.
When it comes to soybeans, farmers have to “make a determination,” advised Zuzolo. “If (producers) store soybeans, they are banking on the idea of a South American weather problem, a tall order to fill,” he cautioned.
Going forward, the market’s main focus will be on South American weather and export demand for both corn and soybeans, noted Larry Shonkwiler, senior commodity analyst at Advance Trading in Bloomington, Ill.
Here are the key numbers from Wednesday’s World Agricultural Supply and Demand Estimates report:
Corn yield of 175.3 bushels per acre, which is more than the average trade guess, according to Reuters, of 173.2 bushels per acre.
Corn production of 15.226 billion bushels, which is greater than the average trade guess of 15.041 billion bushels.
New corn ending stocks of 2.403 billion bushels, which is more than the average trade guess of 2.300 billion bushels
Soybean yield of 52.5 bushels per acre, which is above the average trade guess of 52.0 bushels per acre.
Soybean production of 4.361 billion bushels, which is more than the average trade guess of 4.314 billion bushels.
New soybean ending stocks of 480 million bushels, which is greater than the average trade guess of 420 million bushels.
Wheat yield of 52.6 bushels per acre, and wheat production of 2.32 billion bushels, which will not be revised this month.
New wheat ending stocks of 1.43 billion bushels, which is more than the trade guess of 1.41 billion bushels.
The report raised corn use by 85 million bushels to 14.610 billion bushels. Feed and residual use was unchanged at 5.650 billion bushels. Corn exports also were unchanged at 2.225 billion bushels. It raised soybean exports by 25 million bushels to 2.050 billion bushels.