The first field-based estimates of 2015 corn and soybean crops from USDA were not what the grain markets expected. Many grain trade analysts anticipated the government's August crop report would bring lower crop size estimates. But a big harvest is looming, says USDA, as crop problems this summer haven't been as widespread or as significant as was first thought.
Prospects of a big U.S. corn crop and soybean crop to be harvested this fall are bringing the potential for lower prices for the coming marketing year, says Chad Hart, Iowa State University Extension grain marketing economist.
Pre-report estimates showed that market watchers anticipated USDA lowering yields in its August report, based on troublesome planting and weather conditions. "While USDA did find evidence for significantly lower yields in some areas, they also found support for some record yields, mainly in the northern and western Corn Belt," Hart points out. "Those bigger yields are enough to raise national yield estimates by 2 bushels per acre for corn and nearly a bushel for soybeans."
Get ready to harvest third largest U.S. corn crop in history
The national corn yield is now estimated at 168.8 bushels per acre for 2015. That is 2.2 bushels below last year's record and would result in a national corn crop of 13.69 billion bushels, the third largest corn crop in U.S. history. The consistent storm tracks experienced this spring and early summer showed up in the crop production estimates.
While the national yield estimate of 46.9 bushels per acre for soybeans is roughly a bushel less than last year, the increase in soybean plantings (compared to last year) helped put 2015 soybean production near record territory at 3.92 billion bushels.
Lower prices expected for both corn and soybeans
With higher levels of corn and soybean stocks come lower price projections. For both corn and soybeans, USDA lowered the season-average price projection by 10 cents per bushel. So corn is projected at $3.65 per bushel for the 2015 crop marketing year, putting the price low enough to bring those farmers who are in the Price Loss Coverage program a glimmer of possible payments. The crop marketing year runs Sept. 1, 2015 to Aug. 31, 2016.
Soybean prices are targeted around $9.15 per bushel for the 2015 crop marketing year. So both crops are expected to have lower prices for the 2015 crops than they had in 2014, Hart says. Over the last couple of years, crop returns have suffered as supplies exceeded demand. The latest reports indicate that pattern continues.
Demand outlook for corn and soybeans is a mixed picture
Along with the yield and production estimates, USDA updated its outlook for crop demand. And that update was mixed. For corn, total demand is still on the upswing, but there is weakness in a key sector. The feed demand estimate for the 2015 crop year was raised 25 million bushels to keep it steady with last year's 5.3 billion bushels. Projected meat production gains across the livestock sector are fueling this change. While the pork industry's growth has slowed, a rebound in the poultry sector from avian influenza and a turn-around in the beef industry are supportive for crop demand.
Ethanol continues to hold its own in the fuel market and the increase in miles driven in the U.S. has supported the biofuel industry as production sustains near record levels. Last year, the ethanol industry used 5.2 billion bushels of corn. For the 2015 crop year, the industry is expected to use 5.25 billion bushels. So the market continues to see modest growth in crop demand via fuel.
Weak link is international demand, as U.S. dollar strengthens
The weak link is international demand, Hart says. USDA's August update reduced export demand by 25 million bushels, reducing the total to 1.85 billion bushels, steady with last year. Global economic concerns, such as the situations in Greece and China, combined with the strength of the U.S. dollar, are seen as significant deterrents to growth of international demand.
As with corn, soybean demand is mixed, but the overall trend is lower. Domestic crush continues to build, and the feed and biofuel sectors are promoting that growth. Over the last two years, domestic soybean demand has increased by 125 million bushels. But export demand is projected to fall. The concerns about China, the growth in global soybean production, and the slow pace of advance sales are the main drivers. USDA reduced export projections for 2015 by 50 million bushels to 1.725 billion bushels. That is 100 million bushels below the export level from 2014.
The combination of supply growth and relative demand weakness means that ending stocks are rising. Soybean ending stocks for 2015-16 were set at 470 million bushels, nearly double the figure for 2014-15. Corn ending stocks were projected at 1.713 billion bushels, up more than 100 million bushels from the previous estimate.