A bullish quarterly grain stocks report released on Monday sparked a rally in corn and soybeans to start the week. Arlan Suderman, Chief Commodities Economist for INTL FCStone, says the report on Monday provided some short covering to send prices higher in the near-term, but it also removed the margin of error for a short crop this year.
So, what is the upside potential for corn and beans after the report? Suderman says the trade needs to start seeing some evidence of lower yields.
“A two-bushel drop in corn yields from USDA’s current estimate and a two-bushel drop in soybean yield from USDA’s estimate, all of a sudden starts meaning these markets have to worry about stocks getting tight…the funds can flip from being bearish to starting to add some length, perhaps. If we happen to get a trade deal in the weeks ahead, that would totally fuel the fires then.”
USDA currently estimates 168.2 bpa for corn and soybeans at 47.9 bpa.
Suderman said he believes that this crop looks better than it will yield, and USDA might start to reflect that in next Thursday’s Crop Production report. However, INTL FCStone’s yield estimates, released on Tuesday, are higher than USDA’s for both corn and soybeans.
For the soybean market, specifically, Suderman says, “If the yield stays where it’s been at 47.9, then there’s really no reason for this market to really sustain a rally.”
He added, “We still have African swine fever hurting demand, not just in China, but really in all of Asia now, and continuing to spread and create problems. However, if the yield drops farther, or if we get a weather problem in South America, then that safety margin is gone and then the market can move. How far depends on how low the yield is or how severe the weather problem is.”
As Suderman predicted, we saw the rally halt and profit taking set in on Wednesday with Dec. corn finishing down 4 ¾ at 387-6 and Nov. beans settling down 5 ¾ at 913-6.