USDA soy, corn estimates questioned

The U.S. Department of Agriculture released some eye-popping corn and soybean yield numbers in its latest World Agricultural Supply and Demand Estimates report.

“The August crop report is known for its surprises and the USDA didn’t disappoint,” said Arlan Suderman, chief commodities economist with INTL FCStone.

The corn estimate was 169.5 bushels per acre, which was 3.3 bu. above the average trade estimate and 6.7 bu. above Suderman’s forecast.

The soybean estimate came in at 49.4 bu. per acre, which again topped the average trade estimate by 1.9 bu. per acre.

They don’t sound like big differences but if the USDA is right, it would have huge ramifications for grain and oilseed prices.

Dan Basse, president of Ag-Resource Company, believes the USDA has overestimated both the corn and the soybean yields.

“It’s kind of a beauty contest at this point and today the USDA saw the crops as prettier than what the trade was expecting,” he said.

The USDA surprised analysts by changing the model it uses to calculate corn yields. The new one relies more heavily on objective yield data and the farmer survey.

Suderman said the problem with that is the objective data is based on field observations of immature crops as of Aug. 1.

There is a similar flaw with relying on the farmer survey because anecdotal evidence suggests what they’re seeing in the fields today is worse than what they saw from the roads on Aug. 1.

He believes the yield estimate will drop in the September and subsequent WASDE reports.

If Suderman plugs his yield estimate into his supply and demand worksheet it results in corn ending stocks of 1.6 billion bushels and a marketing year average cash price of $4.35 per bu.

If he substitutes the USDA’s yield estimate, ending stocks soar to 2.37 billion bu. and the average price drops to $3.35 per bu.

That is why he is going to pay particularly close attention to the Pro Farmer 2017 crop tour that starts on Aug. 21. It should shed light on which number is the right one as analysts walk the fields of the U.S. Midwest.

“That should give us a lot of ground truth,” he said.

There are problems with the corn crop in central Illinois and the western Midwest but overall the crop condition index is just below the 10-year average.

“We still do have a lot of good corn out there, it’s just that we believe there’s enough problem areas to pull us sufficiently below trend (yields),” said Suderman.

He is also skeptical of the USDA’s soybean estimate. The trade knows that soybean yields are determined in the month that follows the USDA walking the fields on Aug. 1.

That is why the USDA usually provides a conservative estimate in the August report, which was not the case this year.

Commodity Weather Group has analyzed seven years with similar rainfall patterns and temperatures in the Midwest and similar crop condition ratings.

The final yields in those years ranged from 40 to 50 bu. per acre. The USDA is already at the high end of that range with its estimate.

Suderman said if anything the USDA should have come in below the trend line yield of 48 bu. be-cause one-third of the Midwest is under significant moisture stress and the crop is small in stature.

“It’s very puzzling how they could have come up with that number,” he said.

Suderman said it is possible the crop could end up at 49.4 bu. or even match last year’s 52.1 bu. per acre but at this point it is equally possible it could be as low as 45.

He forecasts 47.7, which would result in 446 million bu. of ending stocks and a marketing year average cash price of $9.40 per bu.

At the high end of the yield range the price would be $8.30 and at the low end it would be $10.65.

The USDA is forecasting 364 million bu. of hard red spring wheat, down from 493 million bu. last year.

Suderman believes that number will be revised even lower in the USDA’s Sept. 30 Small Grains Annual Summary report because the USDA didn’t account for any acreage abandonment in its August WASDE report.

Basse believes one million acres of spring wheat have been baled for hay in the western Dakotas, which will result in a crop of about 320 million bu.

That’s why he doesn’t believe Minneapolis wheat will fall below $7 per bu.

The USDA is now forecasting a Russian wheat crop of 77.5 million tonnes, destroying last year’s record harvest of 72.5 million tonnes.

Basse said it is telling that the USDA increased production by five million tonnes from its July estimate but only boosted Russian exports by one million tonnes.

He said Russia struggles with logistical issues inland and at its ports. So despite the huge Black Sea crop he forecasts increased wheat exports out of the U.S. and Canada.

That is also a function of Australia’s crop falling to 23.5 million tonnes from 35 million tonnes last year.

“Asia is going to be turning more towards North America,” said Basse.

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