Morning Comments September 13, 2022

Harvest 4

Corn and beans finished higher yesterday, with beans adding an incredible 76 cents after the USDA surprised traders with a production cut. Corn finished 11 higher on the day on the back of bean strength and a production cut of its own. Wheat finished the day 11 lower with limited changes to both domestic and global ending stock outlooks.

The biggest surprise of the day came from an acre cut to both corn and soybeans from August numbers. Late last week the USDA announced it felt the FSA data acquired in August was complete enough to update acreage in September, something that has traditionally been done in October. Many market analysts used the historical spread between FSA and NASS data, something that has remained relatively consistent over the last several years, hypothesizing there was little reason to expect a major change in acreage for either corn or beans.

The NASS conversion this year begged to differ, with limited difference seen between FSA numbers updated late yesterday and NASS figures released in yesterday’s report. The limited difference in figures prompted a relatively large and almost entirely unexpected cut to corn and bean acres and further cuts to production once yield reductions were also factored in.

At 4.378 billion bushels of overall production, total soybean crop size came in 118 million bushels lower than the average trade guess. To get there the USDA lowered acres by 600,000 and dropped yield to 50.5 bpa, 1 bushel per acre lower than the average pre-report estimate and lower than the lowest pre-report guess.

To offset some of the reduction in production the USDA lowered demand for new crop crush by 20 mbu and exports by 70 mbu. With the adjustments to both sides of the balance sheet as well as minor changes to beginning stocks, new crop soybean carryout is projected at 200 mbu, nearly 50 mbu lower than the pre-report estimate.

The reduction in US carryout was the only major change in the global balance sheet, though we did see a 1 mmt reduction in projected Chinese soybean imports, down to 97 mmt.

Overall corn production came in 144 million bushels lower than what traders were expecting. The USDA cut planted acres for corn by 1.2 million from last month, with a 1 million acre reduction in acres expected to be harvested for commercial grain. The cut in acreage combined with a 2.9 bpa reduction in yield from last month’s estimate was partially offset by an expected reduction in feed, ethanol and export demand in the new crop season.

Carryout at 1.219 billion bushels came in as traders were expecting, with global numbers showing higher global ending stocks than expected, though major changes to the global balance sheet were limited.

Wheat figures were left mostly unchanged for both global and domestic outlooks. With much of the Northern Hemisphere crop harvested and working through logistical pipelines we will continue to monitor world demand, while also closely watching Southern Hemisphere production weather with moisture needed ahead of planting a new crop north of the equator.

Looking back over the last 15 years it is interesting to note there is little correlation between September yield cuts and cuts to final figures. In soybeans, we have seen 5 years over the last 15 with cuts to yield outlooks made in September. In those years we had 3 years with further reductions made to final yields.

2008, 2019, and 2020 all saw cuts to production in September translating to .3, .5, and 1.7 bpa acre further reductions from September estimates, while 2012 saw a 4.7 bushel per acre gain to final yields and 2013 saw a 2.8 bushel per acre gain.

Corn has a similar history over that same time period when it comes to limited correlation between September cuts and further cuts to final yields. Over the last 15 years, we saw big, multi-bushel cuts to final yields in both 2010 and 2020, while in 2011 and 2019 we saw less than a bushel worth of reduction to final figures.

We saw cuts to September corn yields turn into final yield increases in 2012, 2015, and 2016 though those gains were all less than a bushel, with a 1.6 bushel per acre gain seen in 2008.

Looking ahead we will get updated CPI data this morning, with traders expecting to see a year over year inflation figure of 8.1%. With inflation still expected to be above 8% and the job market still showing signs of strength, traders are all but counting on a 75 basis point increase to be announced by the Fed in two weeks.

We will also be watching what is happening in Ukraine closely as well, as their surprise counter-offensive works to maintain the initial strength seen.

Corn up 1 to 3

Beans up 15 to 20