Soybean Yields Drive Market Lower

Includes: CORN, SOYB, WEAT
by: T. Marc Schober

The U.S. fall harvest is well ahead of schedule and higher than expected soybean yield data has pushed grain prices lower throughout September. Farmers are also busy preparing for the 2013 crop year by purchasing seed and other inputs early, while also strategizing the marketing of their 2013/14 grain. The U.S. drought has put pressure on seed corn producers. There shouldn't be a shortage of seed corn in 2013, but certain varieties will surely sell out earlier than anticipated.

Grain Prices

Corn prices declined in September by 6.1% to end at $7.56 per bushel. Profit taking by speculators, along with a stronger dollar and spillover from soybean market activity, all helped add downward pressure to corn prices this month. The USDA estimated the average U.S. corn yield 0.8 bushels lower to 122.8 bushels per acre in September's WASDE Report. Additionally, the USDA discovered 160 million bushels of old crop corn, which sent stocks up 83 million bushels to 733 million bushels.

Soybean prices decreased in September to close at $16.01 per bushel, a 10.2% decline. The USDA estimated average yields lower by 2.2% to 35.3 bushels per acre in the September WASDE Report, but farmer yield data from harvest consistently outperformed and prices declined throughout the month. Fund profit taking and decreased commercial demand also sent prices lower.

Wheat prices increased by 3.7% in September, closing at $9.02 per bushel due to a potential export limit in Russia and below average winter wheat expectations in the U.S. In the September WASDE Report, the USDA did not change the wheat balance sheet in the U.S., but decreased global production by 3.1 million tons due to decreased yields in Russia. We will closely monitor the U.S. winter wheat crop condition throughout the next few months.

Farmland Values

Buying season is upon us, and many farmland sales have set county records already this fall across the Corn Belt. Farmland values should continue to increase throughout the end of 2012 and into 2013 as high commodity prices, low interest rates, and high farmer demand for farmland will all be key factors in rising farmland values.

The Creighton University farmland price index, which has been declining for three straight months, got a jump start in September and climbed almost 10 points to 61.6 compared to 52.8 in August. This marks the 32nd consecutive month the index has been above growth neutral. The farm equipment sales index increased to an even growth neutral -- 50.0 -- an enormous increase from the 38.3 it posted last month.

Bankers were asked this month to project farmland price growth in the next 12 months. Answers varied, but on average, bankers believe there will be a three percent gain in farmland prices in the upcoming year.

Quarterly Stocks

Corn stocks bullishly dropped below one billion bushels -- the lowest level in eight years -- in the USDA's release of the Quarterly Grain Stocks report last Friday. Soybeans came in within the expected range, and wheat had a slightly bullish tone as stocks fell below estimates. Overall, this report gave a jolt to corn and wheat to the upside, which is surprising, as most analysts predicted a neutral tone.

USDA reported 988 million bushels of corn currently on hand, a decrease of 14% year over year. Soybean stocks decreased by 21% to 169 million bushels compared to 2011. Wheat stocks were reported 2% lower than on September 30, 2011 with 2.10 billion bushels currently in stock in the U.S.

Crop Progress And Conditions

As of September 23, 2012, USDA estimated corn conditions remained unchanged with 24% of the crop in good or excellent condition, yet a 28% decline from last year at the same time. Harvest advanced week over week with 39% of the entire U.S. corn crop harvested, compared to 26% the week prior and the five year average of only 13%.

Soybean conditions were at 34% in very poor or poor condition, and 35% in good or excellent compared to 36% and 33%, respectively, one week earlier. As of the fourth week in September, 22% of U.S. soybeans have already been harvested, compared to the five year average of only 8%.


Some analysts are already forecasting upwards of 100 million acres of corn to be planted in the U.S. in 2013, which would be the highest amount of corn acres since the 1930s. If indeed 100 million acres of corn are planted, grain prices will reflect the increase in potential supply after 2012's massive drought. The insatiable demand from China, Japan, and other countries will help provide a perceived price floor for grains until 2013 planting, and expect buyers to take advantage of any lowering prices.

The Farm Bill is set to expire at the end of 2012, and without any extension -- although highly unlikely -- all farm subsidies will be halted, which includes crop insurance and food stamps. We expect an extension to be in place by year-end, with terms in line with the current Farm Bill.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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