With the September crop report forecasting a corn crop that is consolidating and a soybean crop that is expanding, the grain markets Monday ended 9 cents higher for new crop corn and 30 cents lower for new crop soybeans.  While there were no surprises there, the USDA did raise season average prices for both corn and soybeans in its Supply and Demand Report, which was also released Monday.  Let’s take a look at some of the analysis.

Briefly, the NASS crop report projected a 12.497 bil. bu. corn crop, based on a 148.1 bu. average yield.  That was a 400+ mil. bu. drop from August and caused USDA to reduce its Supply and Demand Report http://www.usda.gov/oce/commodity/wasde/latest.pdf estimates for feed, ethanol, and industrial uses, along with a minor cut in the carry-out, which is now at 672 mil. bu.  The season average price was raised 30-cents to $6.50 to $7.50 per bu.

At the University of Illinois marketing specialist Darrel Good said the USDA also trimmed 20 mil. bu. from the estimated carry out of the old crop at the end of August, by increasing consumption estimates, “September 1, 2011 corn stocks are now forecast at 920 million bushels.  Actual stocks will be revealed in the USDA’s September Grain Stocks report to be released on September 30.”  Good also said global corn stocks were bumped slightly higher, but they are still tight, “The forecasts of corn production in 2011-12 were increased for Argentina, Brazil, and the Ukraine, but reduced for Egypt and Canada.  The projection of ending stocks outside of the U.S. is slightly larger than projected last month, but smaller than stocks at the beginning of the year.”

Another issue that helped reduce corn estimates was the test weight, says Iowa State University marketing specialist Chad Hart,  “The national corn yield was lowered 4.9 bushels to 148.1 bushels per acre as USDA found lighter test weights when they went in the fields this time.”  With the smaller supply, Hart says the demand will soften, “Ethanol and export demand were lowered 100 million bushels each. Ethanol slid on lower expectations for gasoline demand, while exports are off with increased production outside the U.S.”

At Michigan State University, marketing specialist Jim Hilker, wrote his analysis a week before the report, but had an idea what it would say, “The 2011-12 U.S. corn ending stocks were projected to be very tight after the August 11 USDA Crop Report and Supply/Demand Updates incorporating that information. For the country as a whole, the growing conditions in August continued to hurt the corn crop. The market was expecting the September 12 USDA Crop Report to show even a smaller U.S. corn crop than the August Report. What did the report show? How did the market react? Generally the market does not react to the difference in the two reports, but rather the difference between what the market was expecting and the report.” 

New crop corn climbed 9 cents on the report, and Hilker said last week, “So if the market shot up on the report, consider pricing some if you have not priced much to date and you are starting to feel more comfortable you will have a crop. However, there will be other opportunities to price your 2011 corn crop. While we may see lower corn prices, it is highly unlikely that we will see a big drop in corn prices, at least in the near term, and you will have a better handle on the size of your corn crop.”

Summary:
The September Crop Report reduced the projection for corn production, in yield and in total production, resulting in very tight stocks after reduced consumption.  Global stocks will be slightly larger than last estimated, but not by much.  Part of the reduced supply comes on tighter test weights.  Once farmers have a concept of their production, pricing is a recommendation.  While prices may not drop much, storage will consume some of the profits.

Source: the FarmGate blog