USDA Stays Optimistic on Corn, but Gro Model Points to Even Higher Yields

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The USDA’s highly anticipated WASDE report for September continued to take a more optimistic outlook for corn yields than market participants were expecting. And, according to the Gro yield model, corn yield estimates should rise even further before harvest begins.

The latest World Agricultural Supply and Demand Estimates, or WASDE, was the first report of the season that included the USDA NASS objective yield survey, considered a more reliable indicator of yield and one that was expected to reduce the USDA’s forecast. The USDA lowered estimates for corn yields to 168.2 bushels per acre from last month’s estimate of 169.5 bu/acre. The average of market guesses was for an even lower number, of 167.2 bu/acre, according to a Reuters survey, although the range of guesses was quite wide.

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The chart on the left shows the daily forecast from Gro’s US Corn Yield Model for each of the 10 states in the Corn Belt. After being fairly steady in August, the yield for each state increased in September. The chart on the right shows the progression of USDA estimates for 2018/19 US corn ending stocks. The WASDE increased the carryout every month this year. 

On another bearish note for market prices, the USDA reported that because of lower corn demand it had revised higher its forecast for 2019/20 corn ending stocks to 2,190 million bushels, up from 2,181 million in last month’s report. Export estimates for the 2018/19 season were cut for the fifth time this year due to strong competition. Corn used for ethanol in 2018/19 was similarly cut for the fifth time this year. Ethanol production has been trending lower over the last couple of months as stocks sit at or near record levels and prices are low.

The USDA estimates are based on growing conditions as of Sept. 1. At that time, Gro’s US Corn Yield Model was forecasting 167.6 bu/acre, but the model’s estimate has now risen to 170.7 bu/acre as of Sept. 13. Assuming normal weather for the balance of the month, Gro expects the USDA to increase yield in the next WASDE. If Gro’s yield is substituted into the current USDA balance sheet, 2019/20 ending stocks would rise to 2,390 million bushels, nearly equal to last year’s multidecade high.

The USDA also reduced its soybean yield estimate to 47.9 bu/acre from 48.5 bu/acre, versus an average market guess of 47.2 bu/acre. However, estimates of soybean ending stocks were reduced more than the market expected—to 640 million bushels from 755 million bushels last month—as demand was increased in the 2018/19 crop year that was just completed at the end of August.

Soybean exports and crushings were increased a combined 65 million bushels. Shipments in August, typically a slow month, are likely to be a record for that month of the year based on the weekly inspections data. The July crushing report was a record for the month and crush margins improved a bit in August.

Gro’s US Soybean Yield Model as of Sept. 1 was forecasting 44.7 bu/acre. But that estimate has since risen sharply to 46.8 bu/acre. If Gro’s yield estimate is substituted into the USDA balance sheet, 2019/20 ending stocks would drop to 555 million bushels.

Market response to the September WASDE was muted compared with the reaction to the August report, which shocked the market with a 169.5 bu/acre corn yield based on modeled weather and farmer surveys. That was outside the entire range of guesses and sent the market down 6% on the day.

Corn prices fared much better following the September WASDE release, finishing the day up 2%, despite the generally bearish data, partly due to more supportive data on the soybean side. Soybean futures prices responded with a gain of more than 3%, due in part to positive news on the US/China trade negotiations earlier in the day.

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