The September U.S. Department of Agriculture crop report did not surprise many, but nevertheless it was interesting.
There are many factors at play and none will be easy to track. There are so many variables and scenarios that it will take all winter to figure out which one to follow. This will be a winter to do a lot of planning — and then stick to the plan. There will be a plan for every producer and probably none of them will be wrong; it just depends on the situation of each producer.
We know that there will be a battle for acres again this fall. The economics of raising corn, soybeans and wheat will determine what gets planted and what does not.
The forecasted corn crop is large at 13.3 billion bushels. The projected national yield is now 155.8 bushels per acre. The August estimate was 152.8. The carryover is growing at 1.675 billion bushels compared to 1.1 billion bushels last year. The USDA made an adjustment to corn used for ethanol of 100 million bushels and this could be the trend this year.
There are some who believe the adjustment in ethanol will continue which will increase the supply of corn. As the supply grows, the market becomes less worried about supplies. Basis levels remain steady and wide which indicates supplies are coming.
The forecasted soybean yield is 41.4 bushels per acre compared to 41.5 bushels per acres in August. Soybean prices are enjoying good strength because of fewer acres and lower yields than a year ago. The projected carryout is small at 215 million bushels. This news has helped with a 70-cent rally the last two weeks.
We are not the world supplier of soybeans so South America will need to be monitored closely. Brazil is estimating their crop to be a record at 62.3 million metric tons. This is up 6.4 percent from 58.6 mmt in 2006-07. There are some estimates over 63 mmt.
The skyrocketing cost of corn production will force producers to at least evaluate their crop rotation for next year. Many are already questioning what to do at soybean futures near the $10 mark and nearby wheat futures near $9. The deferred wheat futures are at a discount but the world wheat situation is extremely tight which will provide strong support to wheat.
Many wheat-producing regions of the world continue to struggle with weather problems. Many producers I visit with are giving strong consideration to planting some wheat acres next year. At the very least it is a great way to break up the rotation.
No matter what plan is chosen on any given farm, the key will be marketing the crops that are grown. It is easy to say that wheat looks good or soybeans look good compared to corn, but if no sales are made the economics change rapidly. Volatility of the market is great but things change in a hurry.
Grain Angles is written by Dennis Kelly of LeCenter, Minn.