Jon Scheve with weekly market commentary made on July, 14, 2023
Corn
Usually, the July USDA report does not have yield adjustments, but this year there was a change to the estimated corn yield due to excessive dry weather in June.
Export Demand
While weather is always a big factor, long-term demand may also become an issue. The USDA continues to estimate a 27% increase in export demand for next year. However, considering Brazil’s record crop being harvested, and likely an even bigger crop next spring, it is unclear where the added demand will come from. Perhaps the USDA is building a reserve in the demand area in case yields drop further throughout summer.
Feed Demand
Old crop feed demand was changed to match the stocks report from two weeks ago. Moving forward it will need to increase to warrant higher prices, which means more animals will need to be on feed, and that seems unlikely. With additional sorghum acres this fall there continues to be more questions than answers for how feed demand can be increased without a drop in prices.
Projecting Where Futures Can Go
Even if the average national yield decreases, corn’s upside potential may still be limited due to demand. The following chart estimates prices based upon this, and that the percentage of harvested acres is like the last five years, which means one million fewer acres harvested due to dry weather.
Based on these projections, demand does not really become an issue until yields are in the low 160s. History would suggest that a percentage drop that large has a low probability of happening. Regardless, the weather will impact prices most, and the biggest question is how much it will rain over the next 2-3 weeks.
Beans
Unlike corn, the USDA did not make any yield adjustments for beans. August weather will impact bean yields the most, so any estimate before then is just a guess.
Demand for beans may be a concern though. Brazil beans heavily compete against US beans for export to China. Historically the USDA tends to underestimate export demand early in the marketing year, so there may be upside potential. The chart below shows the projected prices for different yield and demand scenarios and assumes the percentage of harvested acres at the average from the last five years.
While August weather will be the biggest factor for bean prices, Brazil has a lot of beans on hand now and their next crop is expected to be even bigger than this last one, which could put downward pressure on prices. Still, the chart shows even a small drop in the average bean yield can tighten the carryout significantly for next year and it could lead to higher prices. Bottomline For both corn and beans weather is still the biggest driver of price direction, but demand will soon become a big factor too. Both are creating a lot of uncertainty in the market around upside price potential.
Jon Scheve Superior Feed Ingredients, LLC
9358 Oak Ave Waconia, MN 55387 jon@superiorfeed.com
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