October 8 – Bailing out the Soybeans Bull

The phrase “October surprise” is commonly reserved for election year politicking. But for corn and soybean producers, it’s too often synonymous with the USDA’s October release of the World Agricultural Supply and Demand Estimates and the Crop Production Report.

Record Pace, Record (Wide) Basis

The pace of soybean harvest in Central Illinois has been so fast that elevators have had to pivot corn tanks to soybeans—some resorting to temporary outside storage.

In recent years, farmers have been planting shorter season soybean varieties and they’ve been planting them earlier. That has changed the timing of the harvest “glut.” Couple those trends with consecutive back-to-back weeks without rain and the harvest supply has outpaced storage and handling capacity.

On top of that, there have been substantial rail delays and the water level in the river system is so low that barge tows have to be downsized in order to navigate. A final factor to the glut has been yields: they consistently exceed expectations.

The result has been a basis so wide (almost $1.00 under board) that even commercial storage to the end of the year looked attractive.

What’s Happening in Illinois?

Last week, harvest crews caught a break.

Rains fell across the central Midwest.

The onslaught of the September soybean harvest has now given way and—as the now narrowing basis indicates—soybean movement to end users and shipping terminals is returning to normal.

The last 30 percent of soybeans in central Illinois is all that remains to be cut.

On our farms, we expected that the second half of our soybean crop would drag down the average yield of our first half. But with just 15 percent left to cut, our rolling average was still increasing with each field finished.

In my backyard, the USDA had it right: the 2017 soybean yield is very similar to the 2016 yield. On our farm, it looks to be even better.

In fact, the majority of FarmLead users that I talk to on a daily basis are also finding soybean yields that are pleasantly surprising though slightly lower than a year ago.

Where Will Yields Go From Here?

The October USDA World Agriculture Supply and Demand Estimates will be released along with the Crop Production report on Thursday this week (October 12).

The October report can bring surprises because its usually the first report to contain hard data from mature or harvested crops. If I were surveyed going into the 1st of October—which I was not—my response would’ve been a higher corn and soybean yield expectation than I’d of guessed in either of the previous two months.

In fact, a month ago I thought the over/under for soybean yield was 48.5; the prior month I thought 47.5. Leading into the report Thursday I wonder if that number isn’t 50? I’m leaning now towards the over.

Last year, the USDA raised soybean yields in both the October and November reports by a whopping (read that game changing) 2.8 bushels per acre. That yield increase equated to almost 250 million of the final 301 million bushel carryout.

On the corn side of things, I hear far more variation in actual yields versus expectations. There are indeed some very good yields—even exceeding a year ago in some cases. However, I’ve heard of tough yields too and some of those are coming from highly productive areas.

The trend in corn yield has been more up than down and therefore I favor an increase in the corn yield by a bushel to a bushel and-a-half.

It’s About More than Supply, Stupid

I get caught up with the supply side of the crop balance sheet. As a producer, that seems natural. But as the year advances, supply questions get answered and two other factors take pricing precedence: demand and money flow.

In the November WASDE report a year ago, the USDA told us that soybean carryout from the 2016/17 marketing year would be 480 million bushels. That was a big number and the market traded accordingly. But in subsequent months, demand outpaced expectations. Finally, in the Stocks report on September 30, the USDA even lowered the 2016 yield a bit to give us an official carryout of 301 million bushels.

They missed the mark by almost 40 percent.

Year after year, it seems like demand bails out the soybean seller. In the fall, USDA projects a substantial carryout but by the end of summer demand has been strong enough to buy stocks down to a level that gives the bulls footing.

The highest likelihood is that USDA will again project a marketing year carryout of over 450 million bushels.

Will the world’s protein appetite strengthen yet again to pull us back towards less burdensome stocks? Will the strengthening LaNina cause production problems in South America? With all the “extra” soybean acres this year, will US famers rotate those acres next year or will the economics lead them to risk growing soybeans on the same fields in back-to-back years?

If not for a higher yield or harvested acreage number in Thursday’s report, there is enough uncertainty to support prices in a range similar to what has been experienced over the last year.

Be wary though, the October surprise.

About the Author
Doug Kirk

Doug Kirk is a Central Illinois Farmer, a FarmLead PowerUser, and grain market enthusiast. He welcomes your feedback and conversation. Reach him in the FarmLead Chicago office at 312-459-6149, via email at d.kirk@farmlead.com, or on Twitter at @iplow1.

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