Todd's Take

Up until Friday, June 30, new-crop prices of corn and soybeans had largely been on the same track. Expectations for better weather as La Nina was on its way out and a remarkably quick planting season that began with several feet of snow in the Northern Plains both added to early views that the U.S. would have record corn and soybean harvests in 2023.

Corn prices started inching higher in late May as farmers began talking about how dry it was. But when the U.S. Drought Monitor confirmed a wide region of abnormally dry areas across the central Midwest, even soybeans responded and started trading higher. As drought intensified on June 15, traders picked up their buying paces in both corn and soybeans and sent prices quickly higher, peaking on June 21. December corn hit $6.29 3/4 and November soybeans hit $13.78 -- it was all about weather and fields that were painfully dry.

The following week, both prices fell back as rain entered the forecast, but it was corn that fell harder. December corn futures fell 16%, compared to a 9% drop for November soybeans. Going by DTN's national cash indices, corn prices fell 16%, while soybeans were only down 6%. I took it to mean old-crop corn supplies were more plentiful than soybean supplies and expected a surprise in USDA's grain stocks report on June 30. As we now know, USDA's acreage estimate was the surprise -- 94.1 million acres of corn plantings were 2.3 million more than Dow Jones' survey of analysts expected, and 83.5 million acres of soybeans were 4.2 million less than expected. To say the estimates were surprises are understatements. Even now, it is difficult to understand the extreme rejection of soybeans.

It is not surprising to see that, as of July 6, December corn prices are down 22 cents from their pre-report close on June 29 or that November soybeans are up 73 3/4 cents from their pre-report close. If there is a surprise, it is that corn prices are not down more and soybean prices are not up more. The planting estimates are that big of a deal.

Specs in corn have already been burnt twice this year and are currently stuck in a losing long position, so I understand if they're not eager to take on new short positions right away. Also, 64% of the Midwest is currently in some stage of drought (D1 to D4), up from 15% a year ago at this time. Many areas have seen crops benefit from rain lately, but good-to-excellent ratings for both corn and soybeans remain at their lowest since 2012 for this time of year. All is not well in the Heartland as corn crops start to pollinate and pod setting is not far off.

I will be the first to say it is still too early to be confident about any national yield estimates, but here are some examples to give us an idea about what we are facing in 2023-24. For corn, 94.1 million planted acres at 175 bushels per acre (bpa) works out to a roughly 15.0-billion-bushel (bb) crop. That is not quite a record crop, but it is big enough to add another 700 million bushels (mb) or 800 mb to corn stocks that are on track to finish 2022-23 at 1.500 billion bushels (bb).

For soybeans, what if we tie the 2016 record and achieve 52.0 bpa? Well, 52 bpa on 83.5 million planted acres works out to roughly 4.30 bb of production. Given this year's widespread drought, that is a pretty generous soybean yield at this point. However, U.S. soybean demand is estimated at 4.34 bb in 2022-23 and could actually be a little more by the time the season finishes. With only 83.5 million acres of soybeans, we need a record yield just to meet this season's level of demand. With USDA estimating old-crop soybean stocks at 230 mb, we are looking at another potentially bullish year of soybean prices, backed up by tight supplies and strong demand. China has to be a little concerned as September soybeans on the Dalian exchange have jumped 7% since USDA's estimates were released, closing Thursday not far from their contract high.

We'll be having this yield discussion for the next few months and USDA's World Agricultural Supply and Demand Estimates (WASDE) report on Wednesday will be one brief stop along the way. Weather holds the cards, and no one can confidently say what yields will be yet, but it seems fair to say that, at some point in the new season, December corn is likely to fall well below $5.00 and November soybeans are eventually headed above $14.00 -- two early lines in the sand that are holding for now.

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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

Todd Hultman can be reached at todd.hultman@dtn.com

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