NAPERVILLE, Illinois, Sept 12 (Askume) – Grain markets moved a step closer to finalizing U.S. corn and soybean production on Thursday, according to the latest estimate from the U.S. Department of Agriculture.
But the question now is whether the eventual harvest will be large or small, resulting in significant changes to current fundamentals of very abundant supply.
The US Department of Agriculture on Thursday forecast US corn production in 2024-25 at 15.186 billion bushels, the second-largest crop on record and slightly higher than in August. Production in August rose to 183.6 bushels per acre (bpd) against a forecast of 183.1, while the trade expected lower production.
Traders were not too disappointed with the data as CBOT December corn futures closed slightly up in Thursday trading, even though corn production and yield exceeded analysts’ expectations.
US soybean production was in line with expectations on Thursday, producing 53.2 bpa, in line with analyst forecasts and the USDA’s August forecast. It maintained its record production target, though traders may be facing a bigger target as soybeans rose 1% in the November session.
But will there be big numbers? Final harvest acreage for corn and soybeans was less than expected for this time of year, but yield trends are not that simple.
Yield Trends
Final U.S. corn production has exceeded the USDA’s September estimate in 12 of the past 20 years. But in only five of those 12 years did September corn production exceed the USDA’s July production.
In other words, the final yield could be higher than in September because September’s data was already a bit low, and that is certainly not the case this year.
USDA’s corn July trendline yield of 183.6 bpa is up from 181 bpa, and this month’s estimate is about 3.6% higher than last year’s record yield. The last time USDA’s September estimate was above the previous high was in 2004 and 2014.
The same applies to soybeans. Over the past 20 years, 13 times the final soybean yield was higher than September, but only four of those 13 times was September yield higher than July.
Soybean production at 53.2 bpa is above July’s trend line of 52 bpa and 2.5% higher than the record set in 2016. In the past two decades, only September 2014 and 2016 soybean production forecasts have reached record highs.
Balance sheet damaged?
If recent trends lead to a decline in corn and soybean yields and production, what effect will this have on overall supply?
In recent years, when final corn and soybean yields have been lower than in September, the average yield for both crops has declined by about 2%.
If final corn production is 2% lower than September, output will still reach a record 179.9 bpa, but production will be down by about 300 million bushels.
This would leave ending stocks in 2024-25 roughly one-third higher than in 2020-21 to 2022-23, and that is before any reduction in demand would be necessary as production falls.
If soybean production fell by 2%, production would fall by 92 million bushels. Before demand adjusts, ending stocks would be about 75% higher than tight levels between 2020-21 and 2022-23.
It is certainly not unlikely for the USDA to raise market corn and soybean production expectations in the coming months, given the already lofty forecasts for 2024-25, but prices are clearly too high in the current market environment and they would have to rise substantially to change this divergence.
Karen Brown is a market analyst at Askume. The views expressed above are her own.
The views expressed are those of the author. They do not reflect the views of Askume News, which is committed to integrity, independence and non-partisanship in accordance with the principles of trust.
