Morning Comments October 13, 2021

Combine and Tractor in the field for Soybean Harvest

It was a rough day yesterday after larger than expected carryout predictions from the USDA for both corn and soybeans. Wheat numbers were in line with expectations.

Looking at a breakdown in the corn numbers we saw the USDA come in a touch higher than anticipated from a yield standpoint with a 176.5 bushel per acre estimate versus the average trade guess of 176. Though they left acreage unchanged, this slight bump in yield combined with the increase in beginning stocks we knew was coming added 72 million bushels to overall supply versus a month ago.

The USDA lowered feed and residual usage by about 50 million bushels while increasing export projections 25 million bushels with food, seed, and residual usage up 5 million bushels from last month. In the end, the adjustments to production, beginning stocks and demand gave us a projected carryout of 1.5 billion bushels, 68 million bushels higher than the average pre-report estimate. 

Globally the increase in U.S. carryout helped to bump up world carryout figures as a whole. While there were other smaller adjustments seen throughout the balance sheet, outside of a slight increase in Chinese beginning stocks for the crop year there was not much else of importance to note.

On the soybean side of things, we saw the USDA come in with a larger than expected yield production estimate and limited changes to demand, pushing carryout to 320 million bushels, larger than the 300-million-bushel average pre-report trade guess and up 135 million bushels from last month.

The USDA projects soybean yields will come in at 51.5 bushels per acre this year. While this isn't a record yield, overall production at 4.45 billion bushels is the most beans we've produced in a year. On the demand side, the USDA left exports unchanged, increased crush a touch and lowered the projected amount of beans they believe we will import. 

While the increase in carryout was stout, it wasn't out of line when it comes to pre-report estimates and really could be considered mostly priced in. What really hit bean bulls by surprise was the larger than expected growth in soy oil stocks. 

The USDA projects we will have 1.8 billion pounds of soy oil on hand at the end of the marketing year. While this figure is not out of line from a historical standpoint, it definitely feels off when looking at current values versus historical. For reference, we had just over a 1.8-billion-pound soy oil carryout in 2019/20 with an average value of just under 30 cents. December soy oil today is trading just over 60 cents. 

Obviously, the continued strength in energies as well as ideas we see an explosion in soy oil demand due to growth in renewable diesel lending support, but one can't help but wonder what happens to the soy complex if energies begin to fade.

From a global perspective, the increase in U.S. supplies and subsequent ending stocks pushed world figures higher as well, with global carryout coming in 141 million bushels higher than anticipated.

Wheat figures continue to show incredibly tight stocks domestically, with carryout falling to its lowest level in over 8 years. Global stocks continue to shrink as well compared to expectations and historical norms. Based on the USDA's world carryout expectations in yesterday's numbers we will end the year with more corn in the world than we will wheat- something that one could say is incredibly unexpected when thinking about just how burdensome wheat stocks were just 2 or 3 years ago.

The strength in wheat will likely help bolster corn for feed demand in the year ahead, though it will definitely take some time to see that transition. 

Outside of the report we got updated export inspections. Soybean inspections were a marketing year high and above the level needed each week to meet USDA export estimates though the overall pace continues to lag. Corn shipments were off a bit from a week ago and below the level needed to meet USDA projections. Wheat shipments were a touch low as well, but with current values that was not unexpected. 

Crop progress showed 41% of the corn crop has been harvested in the country, with 49% of soybeans ran. 60% of the winter wheat crop is planted. 

Looking ahead we will see the release of Fed minutes later this afternoon, with the dollar hitting its highest level in a year as traders expect to see more talk of tapering. According to some experts we are now looking at a 50/50 chance rates get raised before July of next year. A much faster timeframe than discussed even a month ago. 

Fed officials continue to claim inflation is transitory and will not last, but today will be our first insight into their thoughts since the run up in energy prices. As we talked about earlier this week, pain at the pump tends to be the final straw for consumers and subsequently when their representatives in Congress tend to step in.

In addition to Fed minutes, we will be watching to see what kind of follow through we have today after beans made a major move lower. Support was broken yesterday, but a push higher in soy oil overnight as well as the idea Chinese crushers will be in buying big on this break has pushed Nov beans back up above $12 at the time of this writing while corn and wheat remain mixed.

Corn down 3-4

Beans up 5-6