Ample supplies to keep pressure on corn prices; demand continues to support soybeans

Even though a record large soybean crop has been harvested, it was a forecast boost in corn production and supply that proved most bearish in the Nov. 9 U.S. Department of Agriculture Crop Production and World Agricultural Supply and Demand Estimates reports.

“Corn was the bigger surprise,” said Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services. 

The U.S.D.A. corn and soybean production, yield and carryover forecasts in November all were above the average of trade expectations, with corn numbers the most bearish and the forecast average record yield seen as the most surprising of the corn numbers. Mr. Meyers noted that it was the fourth consecutive month that the trade average was well below U.S.D.A.’s forecast corn yield.

“Only 1 of the 10 largest corn producing states had a record yield forecast,” Mr. Meyers said. “Last year, 5 of the top 10 states had record yields.”

He noted that significant portions of the Corn Belt had drought issues in July and August. While he expected a modest bump up in corn yield based on anecdotal reports during harvest and rising U.S.D.A. crop condition ratings as the season progressed, a jump above last year’s record and gains of 3 to 8 bus an acre in several major states was not expected. He pointed out, though, that the U.S.D.A. observed that several states on the periphery and mostly south of the Corn Belt were forecast to have record yields, which boosted the national average.

The U.S.D.A. forecast 2017 U.S. corn production at 14,578 million bus, up 298 million bus, or 2%, from 14,280 million bus forecast in October but down 570 million bus, or 4%, from record outturn of 15,148 million bus in 2016. If realized, corn production will be the second highest on record. Based on Nov. 1 conditions, average corn yield was forecast at a record 175.4 bus an acre, up 3.6 bus from October and up 0.8 bus from 174.6 bus an acre in 2016, the previous record.

“An increase in yield close to this magnitude between the October and November production reports last occurred in 1996 (3.5 bus) and 1992 (5.5 bus),” Todd Hubbs, University of Illinois agricultural economist, said in his weekly outlook following the report. “In each of those increases, the final yield estimate increased from the November forecast, which does not bode well for current supply scenarios.”

Corn carryover on Sept. 1, 2018, was forecast by the U.S.D.A. at 2,487 million bus, up 147 million bus, or 6%, from October, up 8% from 2,295 million bus in 2017 and the largest since 1987-88. The increase resulted from a 298-million-bu increase in forecast 2017 corn production partially offset by a 75-million-bu increase in 2017-18 feed and residual and a 75-million-bu increase in forecast exports.

“Exports are raised 75 million bus, reflecting expectations of improved U.S. competitiveness, reduced exports for Ukraine and increased demand from Mexico based on sharply lower sorghum production prospects,” the U.S.D.A. said.

Mr. Meyers suggested the U.S.D.A.’s higher export forecast for 2017-18 may be overly aggressive based on sales commitments and shipments to date and competition for other exporters as South American weather has been improving.

Mr. Hubbs agreed, noting that “no indication of strengthening export levels have materialized this marketing year,” with corn export inspections during the first nine weeks of the marketing year down 46% from the same period last year.

With the December corn future set to expire in less than a month, Mr. Meyers looked at the March, which he expects will decline to $3.40 to $3.45 a bu before the end of the year from around $3.55 a bu early last week. He noted that although the current production estimate for the 2017 crop is down 4% from 2016, the corn supply for 2017-18 is about the same due to much larger carryover than in 2016-17, and total use is down due to lower export expectations than last year.

“Corn prices will struggle to find support due to the ample supply available during the 2017-18 marketing year,” Mr. Hubbs said. “Barring a surprise for the 2017 corn production estimate or Dec. 1 corn stocks estimate to be released in January, low prices look to continue into the spring when weather and acreage become significant elements in corn price movements.”

Like corn, soybean supplies are ample with record-high U.S. production and improving prospects in South America, where soybean planting continued modestly behind the average pace due to adverse weather earlier in the season.

The U.S.D.A. on Nov. 9 forecast U.S. soybean production at a record 4,425 million bus, down 5 million bus from 4,431 million bus in October but up 129 million bus, or 3%, from 4,296 million bus last year. The average soybean yield was forecast at 49.5 bus an acre based on Nov. 1 conditions, unchanged from October and down 2.5 bus from 2016.

Soybean carryover on Sept. 1, 2018, was forecast by the U.S.D.A. at 425 million bus, down 5 million bus from October based on a like decrease in production and up 41% from 301 million bus in 2017. All other 2017-18 forecasts and 2016-17 estimates were unchanged from October except for a 10c-a-bu increase in the forecast average soybean price paid to farmers.

Mr. Meyers suggested the U.S.D.A.’s 2017-18 U.S. soybean export forecast at 2,250 million bus, up 3% from last year, may be “a little aggressive,” even if demand from China, the world’s largest soybean importer and consumer by far, “still looks pretty robust.” 

Analysts note that China will not repeat the 12% increase in soybean imports seen in 2016-17, and that competition will stiffen as Brazil still is marketing its huge 2016-17 crop. The U.S.D.A. on Nov. 9 boosted its 2017-18 soybean import forecast for China by 2 million tonnes, or 2%, from October, which at 97 million tonnes was up 4% from 2016-17.

“China still is a big part of support to prices going forward,” Mr. Meyers said.

Also key to soybean prices is domestic soybean meal demand, which was forecast up 3% from 2016-17. Mr. Meyers said strong increases in hog and broiler production will be supportive to soybean meal demand. At the same time, a record September soybean crush resulted in an “unusually high” level of month-end stocks, the U.S.D.A. said.

Mr. Meyers noted that the U.S.D.A.’s November soybean ending stock forecast has been too high versus the final estimate in each of the past four years. The trade may be anticipating that the U.S.D.A. carryover forecast is too bearish, he said.

Large supplies dictate that soybean prices still have a “little more downside,” Mr. Meyers said, forecasting the March future to fall to $9.60 to $9.70 a bu from around $9.90 a bu last week.

However, prices favor increased farmer selling of soybeans over corn, Mr. Meyers said, noting that weak cash basis levels and cash corn prices below $3 a bu in some areas will prompt farmers to “sit on as much corn as they can.” 

Current prices and price prospects are shaping farmers’ planting intentions for 2018. Mr. Meyers said the current corn/soybean futures ratio for November 2018 soybeans and December 2018 corn still slightly favors soybeans for next year. But he expects corn plantings to increase by about 1 million acres in 2018 after falling 4% in 2017 and due in part to field rotation needs relative to this year’s record high soybean acreage, which he expects to decline by a like 1 million acres next year.