FORT COLLINS, Colo. (Reuters) - Chicago corn and soybean futures have responded positively the last three times that the U.S. Department of Agriculture published a major report, something that the very plentiful bulls would enjoy should this happen again on Friday.
Soybean futures hit 2-1/2-year highs on Thursday and corn a nearly one-year high before ending lower, though investors have built enormous long positions ahead of Friday’s supply and demand report from the USDA, where U.S. corn and soybean production will be in focus.
The market is fairly set on lower U.S. corn and soybean yields on Friday. Only five of the 23 analysts polled by Reuters see corn yield above the September peg, and five of 22 analysts expect the same for soybean yield.
On average, only modest yield changes are expected. Corn is seen dropping 0.8 bushel per acre to 177.7 bpa, and soybean yield is predicted 0.3 bpa lower at 51.6.
Historically, October yields can be a pivotal point. In the past couple of decades, October corn yield was more likely to be higher than in September rather than lower. But when the October figure came in lower than in September, it was usually lower again in both November and January. Only 2012 and 2016 bucked that trend, and those were very different growing seasons.
Soybean yield has been a bit more likely than corn to be lower in October, and when it is, it almost never rises again in November.
U.S. 2019-20 corn and soybean ending stocks should reflect the Sept. 1 stocks figures published last week, which were lower than expected, especially for corn. Market participants should review the old-crop corn demand items on Friday, particularly feed and residual, the likely culprit for the surprise.
Corn ending stocks for 2020-21 are seen at 2.113 billion bushels, sharply down from 2.5 billion in September and 3.3 billion in June. The 369 million-bushel soybean estimate would be the smallest carryout in four years.
Corn used for ethanol is the glaring stain on new-crop corn demand, but the situation has not worsened over the last month. Production generally trended down over the last month, which is seasonally normal, but it did so to a slightly lesser degree than in recent years. Recent output is down about 9% from the previous three years.
U.S. exports should continue to bolster overall demand. At least 5.4 million tonnes of corn and 8.4 million tonnes of soy were sold for export between the September supply and demand report and Oct. 1, above the volumes from prior years. Actual shipments have also been above average levels, but to a larger degree for soybeans.
Last month, many market participants expected to see large Chinese demand adjustments given the anomalous levels of U.S. grain sales to the Asian country. USDA last month left China’s 2020-21 corn import forecast unchanged at 7 million tonnes, despite its U.S. purchases surpassing that mark, and it is possible the forecast is unchanged yet again.
USDA officials immediately after the report mentioned on Twitter that they must adhere to policies in place, meaning that China’s current tariff rate quota (TRQ) does not allow USDA to expand imports. If Beijing does not officially change the policy, the U.S. agency could still increase the import forecast if actual shipment data warranted a move.
USDA’s Beijing attache on Wednesday left its 2020-21 Chinese corn import forecast unchanged at 7 million tonnes, though it indicated an additional 20 million-tonne special corn TRQ may be under consideration.
The attache also reported that the Chinese government depleted almost all of its temporary corn reserves in 15 rounds of auctions, mostly featuring about 4 million tonnes each, held between May and September. The country’s corn supply-demand gap in the coming year could exceed 20 million tonnes, and additional imports may be the only option.
China has bought more than 700,000 tonnes of U.S. corn since USDA’s September report, bringing total U.S. sales to the Asian country for 2020-21 to just under 10 million tonnes.
STRONG BRAZILIAN HARVESTS
Soybean planting in Brazil has begun in parched soils, delaying those early efforts versus prior years. That can cause losses for the soybean crop, but it can be significantly worse for the heavily exported second corn crop planted immediately after the soybean harvest.
However, the shaky start did not prevent Brazil’s official statistics body, Conab, from projecting record 2020-21 harvests on Thursday. Soybean output is seen up 7% on the year to a record 133.7 million tonnes on both area and yield increases. The corn crop is pegged at a record 105.2 mmt, up 3% on the year due to higher yields.
Conab shrugged off the very dry conditions in some of Brazil’s top soybean areas, saying that strong profitability and forward sales have led producers to take more risks. Forecast models indicate rain showers in some of the dry areas beginning on Sunday or Monday, which might be enough for now to accelerate planting efforts.
In September, USDA increased Brazil’s 2020-21 corn crop to 110 million tonnes from 107 million in August, and it also increased the soybean harvest by 2 million tonnes to 133 million, both on par with or above Conab’s outlook.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
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