By RICHARD A. BROCK*
Farmers had a very negative reaction to the August crop report. Most could not believe the U.S. Department of Agriculture's predictions for corn planted acreage, corn yield or soybean yield. It is important to remember, however, that all of those estimates fall into the category of “possibilities”; they are not even probabilities.
In the category of facts, carryover stocks of old-crop corn will be in excess of 2.3 billion bu., and soybean carryover will exceed a record-high 1 billion bu. Further, a large amount of old-crop corn is going into the end of this season unpriced. It is a fact that a lot of that grain must be priced by the end August, putting pressure on prices.
As a result of this, my firm would anticipate that the extremely high basis levels buyers were faced with a month ago will deteriorate quickly.
Corn harvest is underway in the Delta. Corn yields, while not terrific, are not nearly as bad as some have anticipated. Obviously, U.S. production is going to be down, not only because of reduced yield but also because of the amount of prevent plant acres.
Still, as the Table shows, I would anticipate the 2019-20 carryover to be 1.77 billion bu., resulting in an ending stocks-to-usage ratio of 12.5% and a midrange average corn price (central Illinois) this coming year at about $3.65/bu.
The risk is obviously an early frost. Drop planted corn acres to 88 million and throw in a yield of only 161 bu. per acre, and then there is a risk of corn prices going over $5.00. This, in my opinion, is a remote possibility; it doesn't even reach the level of probability.
Barring an early frost as far south as Champaign County, Ill., feed buyers will be looking at lower costs for both corn and soybean meal over the next year than what some were anticipating in early July.
So far, this has been a fairly classic supply-driven bull market top that provided producers with a great opportunity to sell if they took advantage of it and now will result in some good buying opportunities for livestock producers.
*Richard A. Brock (email@example.com) is president of Brock Associates, publishes "The Brock Report" and develops marketing strategies. Brock also serves as a commodity marketing adviser and price forecaster to many large agribusiness firms, food companies and financial institutions. Disclaimer: Commodity trading involves substantial risk of losses as well as profits when trading futures and options, and past results are not indicative of future results. This brief statement does not disclose all risk aspects of derivative trading; therefore, careful study of the Brock Associates Disclosure Document as well as carrying FCM's Risk Disclosures is strongly encouraged. Redistribution or reproduction of this content is strictly forbidden.