Changes in projected U.S. corn and soybean yields are big news from the USDA Estimation of global agricultural demand and supply (WASDE) and crop production The report was released on Thursday, October 12th. Prices for both crops rose after the report was released as lower yields reduced estimated available supply. However, the response in soybean prices was much larger than that in corn. The response to this report provides further evidence that market conditions vary by crop. This means the corn market is well-supplied and corn prices are relatively low and stable. The soybean market remains tight, with prices fluctuating at relatively high levels. Going forward, the corn market will provide sellers with lower prices in the short term, but returns to storage will be relatively strong and stable. The soybean market is experiencing further uncertainty, especially as the low water level situation in the Mississippi River system, which is critical to soybean exports, is being resolved.
Relative changes in supply and price
USDA’s National Agricultural Statistics Service (NASS) has lowered its 2023 U.S. national average yield projections for corn and soybeans. Corn yield decreased by 0.8 bushels to 173.0 bushels per acre from the September forecast of 173.8 bushels. This was larger than the average analyst prior estimate of a decline of 173.5 bushels per acre. Similarly, NASS lowered its soybean yield estimates from 50.1 bushels/acre to 49.6 bushels/acre, or 0.5 bushels/acre. The average pre-report analyst report soybean yield forecast was 49.9 bushels per acre. Because the estimated planted and harvested areas did not change, the estimated production decreased due to lower yields.
The October WASDE report also reduced the total available supply in the United States (equal to the sum of initial inventories, production, and imports). These supply changes are the result of significant revisions to both production and opening inventories to reflect data released on September 30th.th grain inventory report. To compare the magnitude of supply shocks reported across crops, Figure 1 shows the percentage change in total supply between the September and October reports. Total corn supplies fell by nearly 1%. For soybeans, total supplies fell by about half, or 1 percent.
Corn and soybean futures prices rose on expectations of lower supplies. On the day of the report, nearby December corn futures rose 8 cents per bushel to $4.96 per bushel. The nearby November soybean futures contract rose nearly 38 cents per bushel to $12.90 per bushel. Both prices were just shy of the psychologically important levels of $5 per bushel for corn and $13 per bushel for soybeans.
Figure 1 compares the change in aggregate supply with the observed change in price. In percentage terms, corn prices rose 1.6% and soybean prices rose 3.0%. Note that the decline in soybean availability was smaller than for corn, but the price increase was larger. Market reaction to this report shows how price reactions vary depending on market conditions and how current market conditions differ significantly for corn and soybeans.
Supply and demand balance and price fluctuations
Table 1 shows the complete U.S. commodity balance sheet for corn and soybeans for the 2023/24 market year. Previous month’s forecast and previous month’s changes are provided for your reference only. In addition to the changes in total supply mentioned above, USDA has made some adjustments to the expected commercial uses of both crops in 2023/24. Corn exports remain high compared to the previous year’s 2022/23 marketing year corn exports of 1.67 billion bushels.
The overall situation for each agricultural market is summarized in Table 1 by the stock-to-use ratio shown at the bottom of the table. The October report lowered the U.S. corn stock-to-use ratio from 15.4% to 14.7%. However, this level remains historically high, especially considering that market utilization has been less than 10% over the past three years. For soybeans, there was actually a slight increase in the stock-in-use ratio in his WASDE report for October, but the stock-in-use ratio was around 5%, which can be characterized as historically severe.
of Economic theory of storable commodity prices suggests that there are two basic market conditions. i) high stocks with low and stable stock prices, and ii) low stocks with high and volatile prices. The reaction to last week’s report suggests that the corn market is in the former situation, while the soybean market is in the latter situation. New crop futures price trends from summer 2023 onwards support this idea. Figure 2 shows prices for the December 2023 corn futures contract and the November 2023 soybean futures contract. Each represents the value of the crop at the current harvest and beyond. Since a sharp rally in late July, corn futures have been trading in a narrow range between $4.70 and $5.00 per bushel. Soybeans have been showing some pretty big moves, fluctuating between $12.50 and $14.00 per bushel.
Note that higher and more volatile prices for soybeans compared to corn are not predictive of future price levels. It only suggests that soybean price volatility is likely to be relatively large as soybean inventories are insufficient to cushion the impact of future supply and demand shocks. Current inventory and price levels do not determine what news will happen regarding supply and demand. They only provide information about the nature of the price reaction.
Once the U.S. harvest concludes, corn and soybean market fundamentals will be driven by news on global usage and South American supplies (see daily farm doctor October 17, 2022). We need to continue to monitor the expansion of soybean trade, which is both an opportunity and a threat for farmers considering whether to sell or store after harvest. The outlook for soybean exports looks good, and barge rates on the Mississippi River have fallen over the past two weeks. Corn, by contrast, is unlikely to see significant price increases. Corn futures bids show a small benefit to postharvest storage from both futures carry and basis increases. Corn and soybean sellers must choose which market conditions suit their risk preferences.
Janzen, J. “WASDE Summary: Corn and Soybeans at a Tipping Point.” daily farm doctor (12):157, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 17, 2022.
Wright, Brian D. “The Economics of Grain Price Changes.” Applied economic perspective and policy 33, no. 1 (2011): 32-58.