A larger-than-expected cut in both corn and soybean yield and production, and lower ending stocks than traders had anticipated, along with a bullish world soybean stocks number on the October World Agricultural Supply and Demand Estimates (WASDE) report, sent beans skyward on Thursday. Wheat and corn, which were initially lower following the mostly neutral report, joined in on the bullish move as the day went on.
CORN
Corn futures were about 3 to 4 cents lower prior to the report, and following the report were still lower on the expectation for only a minor yield and production change. However, that would change by midday Thursday, as the "any port in a storm" buying took off in sympathy with the sharp bean rise. The corn yield fell to 173 bushels per acre (bpa), with the trade looking for 173.5 bpa. The resulting 15.064-billion-bushel (bb) production number figured to be down 70 million bushels (mb) from September.
Offsetting the lower-than-expected yield to some extent was a 200,000-acre increase in harvested acres. Corn ending stocks fell by 110 mb compared to September and were 34 mb lower than the average Dow Jones trader estimate of 2.145 bb. A bit bearish for corn was the lowering of both exports and feed and residual to 2.025 bb and 5.6 bb, respectively, by 25 mb each. The net effect seemed to be rather neutral to perhaps a little friendly for corn futures.
On the global front, there were only minor changes, with Argentina's corn production raised by 1 million metric ton (mmt) to 55 mmt (2.17 bb), and exports increased by 500,000 mt, while the EU maize crop was increased by 300,000 mt. Argentina's exports were also raised, by 500,000 mt. World ending stocks were estimated to be 313 mmt and were instead dropped 1.6 mmt from September to 312.4 mmt (12.3 bb).
Overall, the corn report was fairly neutral to perhaps a little friendly, but it would appear that traders may be thinking that the trend of falling yield could continue on future reports, hence the midday buying. Also, funds came into the USDA report net short an estimated 150,000 contracts and decided to lighten up on that bearish bet.
SOYBEANS
Soybeans and soybean meal ended up being the stars of the show following the October WASDE. USDA cut production and yield more than traders had anticipated. With the trade looking for only a minor fall in production to 4.132 bb compared to 4,146 bb in September, production fell by more than that to 4.104 bb, down 42 mb. Soybean yield fell to just 49.6 mb compared to the average trade estimate of 49.9 mb, and down from September's 50.1-bpa yield. Harvested acres remained the same at 82.8 million. Soybean crush was increased by 10 mb to 2.3 bb on the heels of strong domestic bean oil demand and record-large soymeal sales. There are many who think that domestic crush is still understated. However, with U.S. soy export commitments currently 32% lower than a year ago, USDA was forced to lower U.S. exports, and did so, by 35 mb. Ending stocks remained unchanged at a very tight 220 mb, when traders were looking for a bump up to 236 mb. So, on the domestic side, the report was slightly bullish for beans.
On the world front is where the change with the biggest impact came. The average trade estimate for world ending stocks was 119.6 mmt -- a slight increase from September's 119.3 mmt. USDA instead dropped it to 115.6 mmt (4.25 bb) on lower stocks in Brazil, China, and India (whose production fell by 1 mmt). China's crush was increased by 1 mmt, to 97 mmt (3.56 bb). On another note, while average prices were left unchanged for soybean oil and soymeal, soybean oil beginning stocks were down 100 million pounds to begin, and biofuel use rose to a record large 12.8 million pounds on rising domestic capacity and usage. Soybean meal ending stocks remained unchanged, but soymeal exports were raised by 200,000 short tons. Soybean meal took off to the upside following the report, with bean oil settling with a modest gain.
So, with funds coming into the October report probably still short soybeans and products, the bullish report led to some serious short-covering, with November beans finishing more than 37 cents higher, and December soymeal rallying a hefty $15.80 per ton. The U.S. ending stocks remained at a close to pipeline 220 mb, and world stocks took a bigger hit than expected. Traders seem to be looking for the final U.S. bean yield maybe to fall another 0.03 to even 0.05 bpa.
WHEAT
Traders were looking for a modest bump in wheat ending stocks, following the finding of 78 mb higher production in September. They got more than that, with the USDA pegging carryout at 670 mb compared to 615 mb in September, and the average trade guess of 646 mb. Wheat domestic use, in the form of feed, increased by 30 mb, with ending stocks 55 mb higher. The report seemed neutral to slightly bearish for wheat, but it, too, got caught up in the bullish fervor of the soy complex. On a by-class basis, hard red spring wheat stocks were raised 35 mb, while hard red winter wheat stocks rose by 23 mb to 173 mb, with soft red wheat virtually unchanged.
On the world side, Australian wheat production slipped by another 1.5 mmt to 24.5 mmt (900 mb) due to drought, while Brazil's wheat crop slid to 9.8 mmt (360 mb) -- down 500,000 mt due to excess rain. Aussie wheat exports were lowered by 1.5 mmt due to the drought, while Russian wheat exports went the other way -- up 1 mmt to 50 mmt (1.84 bb). Nigeria's wheat crop fell by 500,000 mt, and Russian feed use declined by 1 mmt. There was surprisingly no change in Argentine production, but there is likely to be another cut there as drought expands. World wheat ending stocks slid by a modest 500,000 mt to 258.1 mmt (9.48 bb) -- the lowest since 2015-16.
FINAL THOUGHTS
The market had a much more positive response than one would expect, with December corn closing up 8 cents at $4.96, November beans up 37 1/2 cents to $12.90 and Kansas City December wheat rose 7 3/4 cents to settle at $6.75.
In my opinion, even soybeans had a much more bullish reaction following the report than the numbers would warrant, but my sense is that, with markets typically bottoming in this time frame, funds chose to begin covering shorts, and traders undoubtedly fear another drop in yield for corn and soybeans in November. Only time will tell.
Dana Mantini can be reached at dana.mantini@dtn.com
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