By Karl Setzer 

 

As corn harvest progresses, we are starting to collect more production data. Yields are starting to have a significant range with reports from upward of 50 bushels per acre less than average to the best ever. The greatest losses in yield are in fields that have been corn for multiple years. Where a more normal rotation is seen yields are considerably better. This is making it very difficult to try and predict final corn production this year.

This development in yields could be a factor in what acres are planted next spring. Given the big drag in corn on corn acres more farmers may opt for a more normal rotation. This may only add to soybean acres as the current spread in futures already favors soybean production over corn. If anything, this development in yield may actually prevent the amount soybeans need to push for elevated new crop acres to help rebuild U.S. reserves.

Soybean harvest is getting into its later stages in the United States, and as it does, the moisture content on bushels is dropping considerably. There are now several reports of soybeans at 8 percent out of the field. One issue with this is that it can lower yields by upward of two bushels per acre when this dry. Another is that soybeans are easy to shatter when this dry. The combination of these two factors could easily give the United States a smaller soybean crop than currently projected.

We are already seeing private analysts release their new crop acreage projections for the United States. The latest was the group HIS Markit, formally known as Informa. Markit is projecting U.S. plantings to increase on all three major crops next year from the current year. Corn plantings are forecast to expand by 1.7 million acres, soybeans by 3.3 million acres and wheat by 1.1 million acres. These predictions are in line with what most other analysts have projected. The fact remains there are many factors that will ultimately determine next year’s plantings though, and these numbers will change several times.

When it comes to global corn trade, all interest remains on China. China has an estimated 22 million metric tons of corn on its import books. Just over half of this is expected to originate from the United States with 12 million metric tons. These numbers are significantly different than the 7 million metric tons China is claiming it will import. China has already confirmed it will have a corn deficiency this year and needs appear to be greater than they are indicating, which may be a ploy to keep values depressed.

The unknown with China is just how great their corn deficiency is this year. Initial reports had the shortfall in Chinese corn production at 30 million metric tons. Since then we have seen some analysts predict the Chinese corn crop will be even smaller, and the country will have a deficit upward of 80 million metric tons and possibly more. China’s corn crop started out the growing season with favorable weather conditions, but was soon affected by drought, and then the late season typhoons that have cut production.

China is also seeing its corn demand build as the country rebounds from the African swine fever outbreak. It has been reported that china’s hog herd is up 31 percent from a year ago at this time. We are also seeing new hog farms in China with production increase from seven months straight. In August of this year alone China opened 2,030 new hog production farms. For the 2020 calendar year China has added a total of 11,123 new hog farms to production lines.

Although we have recently seen elevated demand, trade has been slow to react in the corn complex, and some are questioning why. The main reason is that even with elevated demand we have yet to surpass the corn usage estimate being used in balance sheets. It is quite likely that until we see ending stocks on corn dip below 2 billion bu the futures market will be slow to react.

The same question is being asked in the soy complex, but an ending stock reduction in that commodity is more likely. To become bullish corn balance sheets need to shrink by 500 million bu which is quite a change. Soybean balance sheets only have to contract another 100 million bu and trade will start to become more nervous on inventory. This could easily be done with a 2 bushel per acre lower yield than currently being expected.

Government data shows U.S. farm subsidies in 2020 will reach a record $51.2 billion even as we have seen commodity values rally. Given income forecasts, this means subsidy payments will account for 40 percent of U.S. farm revenue this year. Many farmers claim that without these payments they would not remain in business in 2021. The concern is what will happen in 2021 and beyond if payments are not extended.

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