Grain prices fall sharply after USDA releases Grain Supply and Demand report

Grain prices fall sharply after USDA releases Grain Supply and Demand report

The USDA Grains Supply and Demand Report released July 12 provided more negative numbers for future corn and soybean prices.

The report showed rather high levels in the projected ending stocks for both corn and soybeans by Sept. 1, 2017. The report also verified the expectations for very good 2016 national corn and soybean yields in the U.S. corn and soybean market prices have dropped substantially in the past few weeks, which will likely have a significant financial impact on farm operators in the Upper Midwest.

Based on the July 12 report, USDA is projecting that 2016-17 corn ending stocks will rise to nearly 2.1 billion bushels by Sept. 1, 2017, which would be the largest corn carryover level in many years. The carryover level is based on 86.6 million harvested corn acres in the U.S. for 2016, and a U.S. corn yield of 168.0 bushels per acre, resulting in an estimated 2016 total corn production of over 14.5 billion bushels. This compares to total U.S. corn production of 13.6 billion in 2015, and 14.2 billion bushels in 2014.

USDA is now projecting 2016-17 market year average (MYA) corn price in a range of $3.10 to $3.70 per bushel, or an average of $3.40 per bushel. The marketing year for the 2016 crop year will run from Sept. 1, 2016 through Aug. 31, 2017. The final 2015-16 national MYA price is now estimated at $3.65 per bushel, and the final 2014-15 MYA price was $3.70 per bushel. These lower annual corn MYA prices followed much higher corn MYA prices of $4.46 per bushel in 2013-14 and $6.89 per bushel in 2012-13.

Based on the June 30. USDA acreage report, U.S. soybean acreage for 2016 will reach a record level of 83.7 million acres, with 83.0 million acres being harvested. In the July 12, Supply and Demand Report, USDA is projecting a U.S. soybean yield of 46.7 bushels per acre in 2016, which if achieved, would lead to total U.S soybean production of 3.88 billion bushels in 2016, which would be very similar to total soybean production in both 2014 and 2015.

USDA is now estimating soybean ending stocks at the end of the 2016-17 marketing year to be at 290 million bushels, which would be a decline from the 350 million bushel carryover estimated for 2015-2016. However, the 2016-17 soybean ending stocks would be considerably higher than the 190 million bushels for 2014-15, and significantly higher than the soybean ending stocks in the 2-3 years preceding that.

USDA is estimating the national MYA soybean price for the 2016-17 marketing year in a range of $8.75 to $10.25 per bushel, or an average of $9.50 per bushel. This compares to an estimated soybean MYA price of $9.05 per bushel for the current 2015-16 marketing year, and a final MYA price of $10.10 per bushel for 2014-15. The 2016-17 MYA price estimate is well below the final MYA soybean prices of $13 per bushel in 2013-14 and $14.40 per bushel in 2012-13.

Once piece of “good news” in the July 12 USDA Supply and Demand Report was a projected increase in the demand for both corn and soybeans in the 2016-17 marketing year. Total corn demand is expected to increase to 14.2 billion bushels for 2016-17, with expected increases in both feed usage and exports, as well as slight increase in corn used for ethanol production, compared to the previous two years. Total U.S. corn demand in both 2015-16 and 2014-15 was near 13.7 million bushels. Soybean demand for 2016-17 is expected to increase to nearly 4 billion bushels, with solid increases projected in both domestic usage and export demand. This compares to total soybean demand of 3.8 billion bushels in 2015-16.  

Both “old crop” and “new-crop” corn and soybean prices have reacted in a very “bearish” fashion to the crop acreage trends, and the identified levels of grain stocks listed in the June 30 USDA Reports, which were further substantiated by the July 12 Supply and Demand Report. Chicago Board of Trade (CBOT) prices for December corn futures closed at $3.52 per bushel on July 15, which is a drop of $.73 per bushel from $4.25 per bushel on June 16.

December 2016 CBOT corn futures closed at $3.58 per bushel on July 15, which was close to the lowest level during the current calendar year for “new crop” 2016 corn. By comparison, CBOT December corn futures were at $4.45 per bushel on July 10, 2015, and $3.84 per bushel on July 11, 2014.

Soybean futures prices on the CBOT have also dropped quite dramatically since the June 30 Crop Acreage Report, which showed record U.S. soybean acreage for 2016, along with increasing soybean ending stocks for the 2015-16 marketing year.

The CBOT soybean futures price for “new crop” 2016 soybeans closed at $10.57 per bushel on July 12, following the latest USDA Supply and Demand Report, which compares to $11.53 per bushel on June 30, the day of the USDA Acreage Report.

The CBOT November soybean futures had risen from less than $9.00 per bushel in early March to over $11.50 per bushel by late June. The current CBOT November soybean futures price compares to $10.22 per bushel on July 10, 2015 and $11.03 per bushel on July 9, 2014.

Local forward cash prices for “new crop” 2016 corn have dropped to near $3.00 per bushel or lower at many locations in the Upper Midwest, which is well below the “breakeven level” for most corn producers. By July 15, the local current cash corn price for remaining “unsold” 2015 corn in on-farm storage had also dropped to near $3.00 per bushel at many locations in in the Northern Corn Belt, which compares to over $3.80 per bushel at a lot of these same locations in mid-June.

USDA does not track the percentage of bushels in storage that have been sold or not sold; however, most analysts feel that a large percentage of the 2015 corn that is still in farm storage is probably not priced. This could result in a large loss of financial opportunity to those farm operators.

For some producers it is the second year in a row that they have endured this extreme corn price drop after July 1 on their unpriced corn from the previous harvest season, which was being held in on-farm storage for future sales.  

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