The quarterly stocks data surprised trade on corn and soybeans with lower numbers than what were expected. As of Sept. 1, the United States had 2.11 billion bushels of corn in reserves compared to 2.14 billion bushels a year ago. The average guess going into this release was for 2.42 billion bushels. Inventory was split with 1.36 billion bushels off-farm and 735 million bushels on-farm. A year ago, the division was 1.5 billion bushels off-farm and 620 million bushel on-farm.
Soybean inventory on Sept. 1 was 913 million bushels with the pre-report guess averaging 982 million bushels. This was still well above the year ago total of 438 million bushels and a record-sized Sept. 1 number. Soybean inventory was split with 648 million bushels off-farm and 265 million bushels on-farm. A year ago, the split was 337 million bushels off-farm and just 101 million bushels on-farm. The 2018 soybean crop was also re-evaluated with production declining 100 million bushels to a 4.428 million bushels total. This was a prime factor for the reduction to stocks.
The wheat data held fewer surprises. Sept. 1 all-wheat inventory totaled 2.38 billion bushels which was in line with pre-report expectations. This was also nearly identical to the 2.39 billion bushels in storage a year ago. Wheat stocks are split with 1.6 billion bushels off-farm and 775.5 million bushels on-farm. This is 140 million bushels more on farm wheat than last year. The USDA estimate for US 2019/20 wheat production came in at 1.96 billion bushels which was just under the 1.98 billion bushels average trade estimate.
We are at a stage of the marketing year where a shift in interest takes place. Until now much of the interest has been on old crop demand, but now this will shift to not just new crop production, but what impact these bushels will have on the commodity market.
The main focal point as we approach harvest is storage and what will be needed. This will undoubtedly vary significantly across the Corn Belt. According to the latest stocks data, most old crop bushels are being held in the Western Corn Belt. This is also where this year’s crops appear to have the greatest yield potential. In turn, this could easily cause storage issues to develop at terminals in that region.
The opposite is expected to happen in the Eastern Corn Belt. Farmers in the east are also holding old crop bushels, but production is more variable. In some instances, terminals do not believe they will have enough inventory to fill this fall, even after harvest takes place.
These differences in inventory will have two impacts on the commodity market. For one, we will likely see variability in basis values. It would not be surprising to see basis values soften more in the Western Belt than in the East given this expected range in inventory. In some cases, we may not even see the typical widening of fall basis in the East if deliveries are light. At the same time basis could soften more in the Western Belt if farmers continue to hold old crop inventory and then have a normal new crop harvest.
Another impact is what this imbalance of stocks will have on local demand. Processors in the West know they will have a more adequate cushion of raw product and may be unwilling to push for deliveries. Eastern processors may be forced to push for deliveries though, which could make them unprofitable. This is where most ethanol manufactures have gone off-line, and low corn stocks may prevent them from starting back up.
There is another scenario that we could see play out in the interior market. If stocks are great enough in the west, we could see more lateral movement of inventory than normal. This has already been happening, but it is not out of the question this could elevate. This is especially true if the U.S. does not see a rebound in export demand.
Bottom line is we could easily see more basis volatility this fall than normal. While this may create windows of opportunity to market crops, they may be narrow.
One of the numbers that trade continues to point out from the latest production update is the ear weight on corn. This was very high, even with lower test weights coming in from early harvested fields. This already has some analysts reducing their production forecasts ahead of the October report. The question remains if we can reduce corn production enough to offset any further declines to demand.
The same question is starting to surface in the soy complex. Pod counts in soybeans were higher than average in the September WASDE report. History shows that this number tends to decrease as harvest progresses, which in turn will lower our overall production. Given the resurfacing of Chinese demand, there are thoughts this could reduce our future carryout estimates.
This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at email@example.com. You can also follow Karl on Twitter via @ksetzergrains.