Last week I gave some reasons why grain prices could recover. One reason for hope was that we wouldn’t have good crop numbers until August. Check that out!
On August 12, we got those production numbers and they were bearish for soybeans. Perhaps the best explanation for that was that they were neutral for the price of corn.
The U.S. Department of Agriculture is now expecting a record soybean crop. That’s not exactly the news we really needed, and it proved to be true, with November soybean futures closing well below the $10 mark.
The August 12th market gave us a November close of $9.86, which we could have done without. Worse, at the start of trading on August 13th, as I write this, November new crop soybean futures were trading as high as $9.68, and now we are at $9.70 1/4. Yuck! (That’s a technical term. We are now officially in a “yuck” market.)
In search of the good
If we’re looking for good news, we might find it in the corn sector. December futures there closed at $3.97 on August 9. We’re still below $4 right now, trading at $3.98 1/2, down three cents. We managed a close of $4.01 1/4, but that’s only down a little. Maybe that’s not really good news.
The main reason for the price drop is the new crop numbers. The USDA now estimates the soybean crop at 4.589 billion bushels. Worse still, this comes with a higher yield of 53.2 bpa, an adjusted acreage estimate that has been raised by one million acres, giving us a 560 million bushel overhang. That’s the highest overhang in six years.
The corn side of the USDA report shows new crop production of 15.147 billion bushels, a record yield forecast of 183.1 bpa, up 2.1 bpa from previous estimates.
Corn planted area was reduced by 800,000 acres and harvested area by 700,000 acres. (I always wonder where the unharvested acres go.) The yields are at odds with the significant crop problems we have experienced here and there (early excessive rains in the Northern Corn Belt, drought elsewhere, including Ohio).
The USDA also released the Agricultural Supply and Demand Report. This report found a decrease in global corn production of 4.9 million tons and an increase in global wheat production of 2.0 million tons.
These reports and the resulting reactions remind me that I tend to be optimistic. This is often an error in judgment. Pappy always said that there are three types of people in this world: pessimists, realists and optimists.
He said no pessimist farms and very few realists do. This should remind us that farming is an optimist’s game. Tomorrow the sun will rise, the crops will recover, prices will be better, Farm Credit always has more money to lend.
I remember saying that once on the podium at a Farm Credit meeting, and the lenders at the back of the meeting didn’t like it. I said that lack of money is never a good reason to sell grain because Farm Credit has plenty of money. That’s true, except for a couple of bad years when they went bankrupt along with their farmers.
Also, they won’t lend you money, no matter how much money they have, unless you can convince them that you will make a profit from it. That’s a bit difficult at the moment.
A look back
While it’s ugly, it’s necessary to look back a few months and see where we’ve come from. The recent high for December corn futures was $4.96 3/4 on May 15. That means we only lost a quarter of a cent, or less than a dollar, between May 15 and August 8.
The recent high for November soybean futures was $12.30 1/2 on May 7, down nearly $2.50 per bushel since early May. The high for December wheat futures was $7.50 1/4 on May 28. On the morning of August 13, we were at $5.57 1/4, down nearly two dollars.
What happened in early May to give us those highs? We had large areas of heavy rain and delayed plantings. That was the last time we had good reason to believe the crop might be small. There are still reasons why some areas don’t produce good crops, but the USDA’s August production numbers are usually pretty accurate for corn.
There may still be weather damage to soybeans filling their pods in August, but the detailed forecasts do not indicate this. Almost a third of August is already over and crops are now mostly ahead of the calendar.
Since I am not personally affected by price problems (nor have I been for the last 30 years), it is easy for me to pontificate on grain prices. The basic principle that comes to mind is that we are generally better off with a good crop and bad prices than with a bad crop and good prices.
If something doesn’t change soon, we’re not going to feel better. It’s not a good feeling to produce crops that cost less than the cost of production. I remember five years of poor yields and terrible prices in the ’80s. It wasn’t fun then and it’s not fun now.
