Special Market Update

August is almost over, and what started as a low volatility month (relatively) has now become a downward selloff. On August 13^th the USDA’s month WASDE report was released and the market was shocked with a 174.6bu corn yield, down from 179.5 on July’s report. This surprise sent the market higher and almost reached limit higher before closing just a few cents higher on the day. Since the report we have seen a large sell off for both corn and soybeans for a couple of different reasons, weather being the main factor. We have a few key items to watch approaching new crop that will be the main influences on price.

The corn market is largely focused on the dryness in the west and what that will mean to yield. The pro farmer tour was conducted last week and is one contributing factor to the market’s weakness. As tour results started to get released last week the yield numbers were better than the USDA’s numbers, therefore implying a higher national yield. One area specifically that the market reacted to was the yield numbers from Iowa. The pro farmer tour estimates Iowa’s corn yield at 198, 5 bushels per acre higher than the US. Given Iowa is the largest producing corn state, 5 extra bushels per acre adds about 65 million bushels of corn to total production. As a whole, the tour estimates national yield average at 177.6 bushels per acre, 3 bushels higher than the USDA estimate. Using the USDA harvested acre number of 93 million, an extra 3 bushels per acre would add 279 million bushels back to the balance sheet.  On top of the pro farmer numbers, rainfall forecasts in the western corn belt increased for the key dry areas and that added more pressure to the futures market. As we approach harvest the market will be closely following any yield reports from the field, with most eyes on the western bushels that started off with extreme dryness. (NW IA, S SD and S MN).

Soybeans did not have the same surprise on the august WASDE that corn did. The USDA lowered yield 0.8 bushels per acre to 50.0. The lower supply was offset by reductions to crush and exports, leaving the estimated carryout of 155 million bushels unchanged. Soybeans do relate to corn in that pro farmer yield estimates we also higher for soybeans vs USDA estimates. Pro farmer estimates national yield at 51.2 bushels per acre, 1.2 bushels higher than the USDA. Using the USDA planted acre number of 86.7 million acres, and extra 1.2 bushel per acre yield would add 104 million bushels to the balance sheet. Carryout is currently at 155 million bushels, one of the lowest of all time, and 104 million extra bushels would add a lot of comfort. The developing story in the soybean complex came out just last Friday. The EPA is recommending to the white house that the biofuel blending mandate for the 2021 crop year be lower than 2020 levels. The citing for the reduction is that blending levels post covid are lower than pre covid, and a mandate of that level is no longer required. Soybean oil had a 733-point trading range last week and closed near limit down Friday. Soybean oil price is a huge factor in the margin soybean processors make. Should we see a lower mandate come out that would be bearish for soybean oil and could in turn reduce soybean basis at your local crush plant.

In summary, we find ourselves in a weather market with everyone trying to figure out what final yield will be. One sleeping factor this year could be harvest timing. Coming off a shorter crop last year and a large inverse, early bushels will hold a large premium. Any rain delays or early frost could add huge premiums in your local market. Make sure to stay in touch with your local grain merchant or follow us on twitter @andersonsgrain for updates!