The U.S. Department of Agriculture surprised the markets on Aug. 10 with corn, soybean and most wheat production forecasts above trade expectations. Futures turned sharply lower after the report and mostly have struggled to find reasons to trade higher ever since. But as is typical after a major U.S.D.A. surprise, there are doubts about whether the U.S.D.A. forecasts will come to fruition or if the weather will trim yields, especially for corn and soybeans.
The U.S.D.A. in its Aug. 10 Crop Production report forecast 2017 U.S. production of corn at 14,153 million bus, down 7% from 2016 but still the third highest on record and 2% above the average of trade expectations. Soybean production was forecast at a record 4,381 million bus, up 2% from 2016 and 4% above the trade average. All wheat production was forecast at 1,739 million bus, down 1% from July and down 25% from 2016 but 1.5% above the trade forecast. Winter wheat production was forecast at 1,287 million bus, up 1% from July but down 23% from last year but still about 1% above the trade forecast. Production of spring wheat other than durum was forecast at 402 million bus, down 5% from July and down 25% from 2016 but 2% above the trade average. Durum outturn was forecast at 51 million bus, down 12% from July, down 51% from 2016 and 12% below the trade average.
While the U.S. wheat production forecasts were less bearish than the corn and soybean numbers, the U.S.D.A. boosted its 2017-18 global wheat production forecast by about 1% and raised ending stocks about 2%, which means U.S. wheat will continue to struggle for a share of export markets. Both global corn and soybean production and ending stocks forecasts were down from July.
The data jolted wheat, corn and soybean futures. Kansas City and Chicago winter wheat contracts (September) lost all of the run-up to contract highs set July 5 and hit contract lows at mid-week last week. Minneapolis spring wheat (September) lost much of its run-up but held above contract lows. The December corn future was only about a nickel above its contract low, dropping about 50c a bu, or 12% from its July 11 high. Soybean futures fared only slightly better, with the November contract dropping about $1.20, or 11%, from its high on July 11.
With winter wheat harvest completed and spring wheat harvest advancing quickly, most focus of crop analysts will be on corn and soybeans for the rest of the growing season, with an eye on the weather and its impact on yields. The U.S.D.A. forecast the average corn yield in 2017 at 169.5 bus an acre, down 5.1 bus, or 3%, from a record 174.6 bus an acre last year but 2% above the trade average forecast. The U.S.D.A. soybean yield forecast of 49.4 bus an acre was down 2.7 bus, or 5%, from 52.1 bus an acre last year but was 4% above the trade average.
“The poor crop condition reports and significant weather issues in many areas leads many market observers to conclude the (corn) yield to be too high,” said Todd Hubbs, University of Illinois agricultural economist, in his Weekly Outlook. “There appears to be a possibility of U.S. average corn and soybean yield forecasts to decrease. For soybeans in particular, August weather will be a deciding factor.”
A major weather concern remains in Iowa, the nation’s largest corn and soybean producing state, according to the U.S. Drought Monitor. More than half of the state, mainly the southwestern half, is abnormally dry with pockets of severe drought, as is about half of Nebraska and most of South Dakota, while drought remains extreme to exceptional in most of the western half of North Dakota. Whether moisture shortages in those areas are enough to reduce average yields for the entire nation remain to be seen, with a clearer picture hoped for in the U.S.D.A.’s September crop report.