Crop Revenue = Price/bushel x yield. As of November 1st, a good share of the Midwest knows the second part of this equation. An unprecedented dry period lasting nearly all of September and October allowed for rapid crop dry down and harvest this year. By November 1, soybean harvest was completed and well over 90% of the corn was finished through the heart of the corn belt. National corn yield is a record this year at 183 bu/acre and soybeans a near record at 51.7 bu/acre.Yields were exceptional in the areas where excess water in May and June wasn’t an issue. Areas hit hard by those heavy rains in the northern edge of Iowa and southern Minnesota are having a much tougher year.
With yields determined, the price/bu half of the equation now comes into the spotlight on unsold bushels. Prices bottomed out in late August on the most bearish of yield estimates and demand projections. Since then, a few positives have helped our prices somewhat, with local cash elevator prices currently at $4.25/bu for corn (higher at Ethanol plants) and $9.85/bu for soybeans. The very dry end to the growing season likely took away some top end yield on soybeans, and to a lesser extent on corn. Early dry weather in Brazil delayed soybean planting, and caused the first modest crop scare there, with a corresponding jump in soybean prices. The rains have improved over the last few weeks, bringing soybeans back down near previous lows. The biggest positive factor has been in the improvement in demand, spurred by low prices. October has seen exceptional exports of both corn and soybeans, as we are currently very competitive in the world market. There is some concern that this demand is front loaded to avoid the uncertainty that is likely following our presidential election; time will tell on that. Neither of the candidates are free traders, and the continued and even expanded use of tariffs in economic policy will likely continue no matter who wins the election.
Ethanol demand has stayed strong and has been a real bright spot for our local corn demand. Even with a good crop in most areas, ethanol plants have continued with strong bids through harvest, and we have hope that this will continue post-harvest once this year’s crop has found a home.
Looking forward, the flickers of recent positive news gives us some hope for next year, but not enough to get too bullish. Carryover supplies of corn at the end of this marketing year are projected near 1.9 billion bushels, and soybeans are near 450 million bushels. Both these figures are the highest we’ve seen in 5 years. Of the two crops, corn seems to have the better demand story. The United States is still the dominant player in the export market, and domestic use for feed and ethanol looks to remain strong. A decrease in corn acres or weather challenges next spring could quickly improve the price outlook.
Soybeans have a tougher story. Carryover is more burdensome, and Brazil continues to erode our export market, especially to China. While we continue to be an important supplier to them during the fall through early winter months, our share of this market has worked lower over the last few years and could take an even more substantial hit if increased tariffs come into play. Our hope was that domestic usage of soybeans, namely through increased oil into renewable diesel, would be filling a greater share of the void left by reduced exports by this time. We still feel that long-term this will be an increasing market for soybean oil, but implementation has been slowed by lack of details from the government for the 45Z Clean Fuels Production Credit that will be an important profit component for renewable diesel production. Finalization of these deails will probably trickle into the new year given the government gridlock during the post-election period. As we’ve seen in the past, reliance on government mandates can be a double edged sword.
The coming year will likely be one of taking advantage of small rallies when they happen, and not holding out for a home run on prices. As always, a major weather problem here or in South America could change this outlook, but barring that, ample grain supplies will keep market moves from getting too robust.
