USDA Showdown: Can Yields Surprise the Market?

Markets traded lower again as pre-report positioning, and fear of a bearish USDA yield update influenced the trade direction. Tomorrow’s report will take much uncertainty out of the markets and allow US harvest weather and Chinese demand to be the major fundamental market drivers, while the logistic problems caused by the two wars remain in the background. China’s Golden Week holiday ended today which should have them come back into the world markets in the days ahead. China still has a substantial number of bushels to buy by year end if they are going to finish their purchase pledges from the trade agreements, which will be closely monitored.

News and Notes:

• Tropical storm Isaias has been strengthening all day with landfall expected near Pensacola, FL and then quickly move north and east. The Delta cotton crop and all unharvested acres of corn and beans will endure heavy rain and 40-50 mph winds further inland. Hurricanes always trouble the forecast models, so the late October weather forecasts will not be fully trusted until next week.
• The USDA report estimate table is on Page 2, and the biggest numbers tomorrow will be the yield numbers. Corn is estimated at 177.7 (.8 BPA cut from September) and beans at 52.8 (unchanged) which seems the best-case scenario considering all of the rain related problems the crops had over the last few weeks. For a bullish corn reaction (15 to 20 higher), the yield number needs to be 176.5 which would offset the 173 MBU that were found in the quarterly stocks report, for it to be really bullish, any number under 176 could push prices quickly back over $5.30. For beans, a bullish move will take a yield of 52.3. Obviously, the most bearish scenario would be higher yields, but after the steady drop in yield and ratings since August, which seems unlikely.
• The only bright spot in today’s weekly export sales report was a huge week of 26/27 crop year bean meal sales while the other sales categories were on the lower end of estimates. There have been no flash sales to China since they have been observing Golden Week, but it ended today so normal Chinese business should return in the days ahead.
• Crude oil and diesel moved sharply higher over the last 2-days as end users found diesel coverage when future prices fell under $4.40 which started the bounce and today’s threats from President Trump about bombing Iran again added to eh gains. At today’s highs, prices were 56-cents off Tuesday’s lows. The energy markets will remain very volatile, so fill up your tanks on any meaningful dips.
• The average fall insurance revenue prices are $5.0125 for corn and $12.8863 for beans.

It is all about Friday’s USDA report and what changes they make and how those changes filter through the rest of the balance sheets. Crop conditions and the weather over the last few weeks make me think that yields will ultimately be lower than what is released tomorrow, but the USDA has plenty of time to be patient on changing their numbers with harvest just 25-30% complete. If the weather allows, the November report will have much more actual yield reports, which is where the USDA may make larger changes. We will put out a report recap after the report is released at 11 central.