The quarterly stocks data surprised trade on corn and soybeans, with lower numbers than what were expected. As of Sept. 1, the United States had 2.11 billion bushels of corn in reserves, compared to 2.14 billion a year ago. The average guess going into this release was for 2.42 billion.

Inventory was split, with 1.36 billion bushels off-farm and 735 million on-farm. A year ago, the division was 1.5 billion off-farm and 620 million on-farm.

Soybean inventory on Sept. 1 was 913 million bushels, with the pre-report guess averaging 982 million. This was still well above the year-ago total of 438 million and a record-sized Sept. 1 number.

Soybean inventory was split into 648 million bushels off-farm and 265 million on-farm. A year ago, the split was 337 million off-farm and just 101 million on-farm. The 2018 soybean crop was also reevaluated, with production declining 100 million bushels to a 4.428 million total. This was a prime factor for the reduction to stocks.

The wheat data held fewer surprises. Sept. 1 all-wheat inventory totaled 2.38 billion bushels, which was in line with pre-report expectations. This was also nearly identical to the 2.39 billion in storage a year ago. Wheat stocks are split, with 1.6 billion off-farm and 775.5 million on-farm. This is 140 million bushels more on-farm than last year.

The USDA estimate for 2019/20 wheat production came in at 1.96 billion bushels, which was just under the 1.98 billion average trade estimate.

We are at a stage of the marketing year where a shift in interest takes place. Until now much of the interest has been on old-crop demand, but now this will shift to not just new crop production, but what impact these bushels will have on the commodity market.

The main focal point as we approach harvest is storage and what will be needed. This will undoubtedly vary significantly across the Corn Belt. According to the latest stocks data, most old-crop bushels are being held in the Western Corn Belt.

This is also where this year’s crops appear to have the greatest yield potential. In turn, this could easily cause storage issues to develop at terminals in that region.

The opposite is expected to happen in the Eastern Corn Belt. Farmers here are also holding old-crop bushels, but production is more variable. In some instances, terminals do not believe they will have enough inventory to fill this fall, even after harvest takes place.

These differences in inventory will have two impacts on the commodity market. For one, we will likely see variability in basis values. It would not be surprising to see the values soften more in the Western Belt than in the Eastern, given this expected range in inventory.

In some cases, we may not even see the typical widening of fall basis in the East if deliveries are light. At the same time basis could soften more in the West if farmers continue to hold old-crop inventory and then have a normal harvest.

Another impact is what this imbalance of stocks will have on local demand. Processors in the West know they will have a more adequate cushion of raw product and may be unwilling to push for deliveries. Eastern processors may be forced to push for deliveries, though, which could make them unprofitable. This is where most ethanol manufacturers have gone offline, and low corn stocks may prevent them from starting back up.

There is another scenario we could see play out in the interior market. If stocks are great enough in the West, we could see more lateral movement of inventory than normal. This has already been happening, but it is not out of the question this could elevate. This is especially true if the U.S. does not see a rebound in export demand.

Bottom line is, we could easily see more basis volatility this fall than normal. While this may create windows of opportunity to market crops, they may be narrow.

One of the numbers that trade continues to point out from the latest production update is the ear weight on corn. This was very high, even with lower test weights coming in from early-harvested fields. This already has some analysts reducing their production forecasts ahead of the October report.

The question remains if we can reduce corn production enough to offset any further declines to demand. The same question is starting to surface in the soy complex.

Pod counts in soybeans were higher than average in the September USDA report. History shows this number tends to decrease as harvest progresses, which in turn will lower our overall production. Given the resurfacing of Chinese demand, there are thoughts this could reduce our future carryout estimates.

Karl Setzer is Commodity Market Analyst for AgriVisor. His market commentary can be found on Twitter via @ksetzergrains

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.