KANSAS CITY, MISSOURI, US – Corn and soybean futures seemed to defy gravity in trading higher after the US Department of Agriculture provided bin-busting production estimates for both crops in its November World Agricultural Supply and Demand Estimates report issued Nov. 9.

Surging wheat futures, reflecting tight projected 2021-22 wheat ending stocks in both the United States and other major exporting countries, certainly exerted a powerful upward pull. But analysts interviewed by Milling & Baking News, a sister publication of World Grain, suggested while soybean and corn futures for a time may derive fuel from rallying wheat futures and even test their recent highs, upside potential beyond those tests may be limited as the supply-and-demand outlooks for both corn and soybeans, barring severe crop problems in South America or an unexpected surge in export demand, simply are not persuasively bullish.  

Old crop corn futures advanced in the wake of the USDA report but fell short of topping their recent highs set on Nov. 2, and they continued to trade well below contract highs set in early May.

“Corn is in a trading range environment,” said Brian Harris, executive director and owner, Global Risk Management. “They say a rising tide lifts all boats. In this case, advancing wheat futures have been supporting corn partly because at these prices, we’d expect to see some wheat feeding demand shift to corn.”

The USDA on Nov. 9 forecast the carryover of corn on Sept. 1, 2022, at 1.493 billion bushels, down 7 million bushels from the October projection but up 257 million bushels, or 21%, from 1.236 billion bushels in 2021. The recent five-year average corn carryover was 1.962 billion bushels.

“Ending stocks are not super tight, they’re adequate, but I’d shy away from saying we’re comfortable,” Harris said. 

The USDA raised its forecast for the average corn yield in 2021 to a record 177 bushels per acre, which resulted in a 43-million-bushel higher production estimate at 15.062 billion bushels. The 2021 corn crop was estimated to be the second largest on record and was 951 million bushels, or 7%, larger than the 2020 outturn of 14.111 billion bushels. The hike in the production forecast led to a 43-million-bushel increase in the forecast 2021-22 corn supply to 16.323 billion bushels.

The record corn yield estimate surprised many.

“If you said in August that we would have a record corn yield, I’d have said you were crazy,” said Paul Meyers, vice president, commodity analysis, Foresight Commodity Services, Inc., referring in part to the effect of drought in some key growing areas during the summer.

On the demand side of the corn balance sheet, the USDA raised its forecast for 2021-22 domestic use of corn by 50 million bushels, to 12.330 billion bushels, because of a 50-million-bushel hike in the outlook for corn use in manufacturing ethanol to 5.250 billion bushels, which compared with 5.028 billion bushels in 2020-21.

The USDA commented in its November Feed Outlook, “Ethanol production increased substantially during October, according to weekly data reported by the Department of Energy’s Energy Information Administration (EIA). Weekly totals during October nearly exceeded record-setting totals set in 2017. This increase is partially due to the strong margins seen for ethanol producers, as corn prices have fallen with the 2021-22 corn crop coming to market, and gasoline prices have remained strong.”

The USDA’s projection for feed and residual use of corn in 2021-22 was unchanged at 5.650 billion bushels.

The USDA forecast US corn exports in 2021-22 at 2.5 billion bushels, unchanged from October but down 253 million bushels, or 9%, from 2.753 billion bushels in 2020-21.

Harris said the export outlook had some traders a bit on edge.

“There are large sales on the books with China, but they’re just not pulling from the sales as quickly as expected,” Harris said. “We haven’t seen any cancellations yet, but some people are nervous.”

The USDA in its weekly Export Sales report said 841,000 tonnes of US corn had been exported to China for 2021-22 by Nov. 11, but another 11,084,200 tonnes have been sold to that country but not yet shipped. The USDA also noted China had a record-large corn crop in 2021 estimated at 273 million tonnes versus 260.67 million tonnes in 2020.

Meyers and Harris said the forecast La Niña must be monitored and may reduce corn production prospects for Argentina, but for now, the USDA projected 2021-22 Argentine corn production at a record 54.5 million tonnes, up 1.5 million tonnes from the October forecast and up 4 million tonnes from 2020-21.

Turning to corn market direction, Meyers said he expected the March 2022 corn future in the next several weeks to fall into a $5.30-to-5.40-a bushel range, “especially if South American weather is favorable.”

Harris said he thought the March future might test $6 a bushel, but he didn’t expect that level, if reached, to be sustained. He said the March future most likely would range between $5.50 and $5.85 a bushel.

Harris added, “If you take a peek down the road, we all know fertilizer costs have nearly tripled over the past six to eight months. So if you look out to the new crop 2022 corn futures, they’ve been making new contract highs at around $5.60 a bushel. So, the market already is in the mode of needing to buy acres.

“From a pure buy-sell perspective, it’s tough to believe between now and midway through the first quarter, when spring planting decisions are made, that you’re going to get a substantive break in corn,” Harris said. “With a raging bull market in wheat and fertilizer costs going through the roof, corn prices will have to be high enough to maintain acreage in 2022 at an acceptable level.”

Soybean futures have rallied about 70¢ a bushel since the November WASDE was released. But this advance brought futures only back to recent highs posted in September. The contract high for the January 2022 soybean future was $14.79 a bushel set in early June.

The most surprising takeaway from the USDA’s November report on soybeans was the lower estimated yield, Harris and Meyers agreed.

“I think the market was leaning the wrong way” on expectations of the USDA soybean numbers, expecting higher production and yield but getting lower estimates for both, Meyers said.

The USDA estimated the 2021 average soybean yield at 51.2 bushels per acre, down 0.3 bushels per acre from the October forecast but still the second highest on record after 51.9 bushels per acre in 2016. The USDA lowered its production estimate by 23 million bushels, to 4.425 billion bushels, which still was up 5% from 4.216 billion bushels in 2020. As estimated, the 2021 crop would be the second largest on record following 4.428 billion bushels in 2018.

Even with the smaller crop estimate, the USDA forecast the carryover of soybeans on Sept. 1, 2022, at 340 million bushels, up 20 million from the October outlook and up 33% from 256 million bushels in 2021.

The USDA lowered its forecast total soybean supply in 2021-22 by 23 million bushels, to 4.696 billion bushels.

The soybean crush in 2021-22 was projected at 2.190 billion bushels, unchanged from the October forecast and up 49 million bushels from 2.141 billion bushels in 2020-21.

US soybean exports in 2021-22 were projected at 2.050 billion bushels, down 40 million bushels from October and down 215 million bushels, or 9%, from 2.265 billion bushels in 2020-21. The lower export forecast reflected reduced global imports and lower-than-expected US shipments through October, according to the USDA. China demand loomed large in the lower export forecast.

Harris noted China turned to Brazil for some soybean cargoes in recent weeks, which was highly unusual for the time of year with the US harvest underway. The Chinese purchases of Brazilian soybeans was viewed as a precaution if view of disruptions to shipments out of the US Gulf because of Hurricane Ida and overall transportation problems in the United States.

Additionally, the Chinese soybean crush has slowed. The upshot was Chinese purchases of US soybeans to date have been below those of 2020-21.

“We think there is room for the USDA to lower the 2021-22 export number by another 50 million to 100 million bus going forward given the current pace,” Harris said.

Total soybean disappearance in 2021-22 was forecast at 4.356 billion bushels, down 43 million bushels from October and down 149 million bushels, or 3%, from 4.505 billion bushels in 2020-21.

With the US crop size known, attention was shifting to South American production prospects especially given Brazil and not the United States is the world’s largest producer and exporter of soybeans.

“Brazil looks great at this point,” Harris said. “A rapid planting pace has them more than 80% seeded on marginally higher acres under nearly ideal weather conditions thus far. We could see a crop as big as 145 million tonnes there in 2022 versus a crop just shy of 138 million tonnes in 2021, if Mother Nature continues to cooperate. We will need to keep an eye on La Niña development for Argentina, however.”

Harris said, “With a big US crop, excellent development thus far in South America, and a slower export pace, it will be difficult for soybeans to sustain prices above $13 a bushel going forward. Expect prices to drift back lower into yearend without a South America weather problem.

“Using the March 2022 futures as a proxy, we see soybean prices moving back towards $12.25 to $12.50,” Harris said.

Only a weather problem in South America, particularly in Brazil, or an expansion in demand for US soybeans from China could produce a breakout higher in soybean futures, Harris said.

“The problem is the window for an expansion in China demand is closing for US soybean,” Harris said. Brazil will begin harvesting soybeans in January, and China will turn to that nation as its principal supplier.

“The data don’t add up to $12.50-a-bushel soybeans,” Meyers said. He expected the March soybean future to trade down into the low $12-a-bushel area. He observed that would equate to soybean oil futures around 56¢ to 57¢ a pound compared with around 57¢ currently with the oil share of the soybean crush recently declining.

Harris added, “The sharp rally in the soybean meal market over the last month has pushed soybean oil share of product value back into support between 43% and 44%. A biofuel mandate announcement from the Environmental Protection Agency will be the biggest driver of price for both meal and oil into the first quarter, but from what we know right now, expect meal to struggle above $390 a ton and soybean oil to continue to find solid support near 56¢ a pound, basis the March futures on both.”