There was plenty of grist for the analytical mill in Thursday morning's USDA reports, from the re-survey of acreage in four states to the first survey-based corn and soybean yield estimates for 2011 to big hikes in projected world wheat production and ending stocks. DTN Analyst John Sanow wrote an excellent piece on the corn situation, so I'll focus on the surprises and challenges for soybeans.

Let's start with the highlights of the production report. USDA reduced soybean planted acres by 0.3%, with most of the adjustment coming in South Dakota following the re-survey conducted in late July. That puts national planted acreage at 75 million. USDA is going with 73.8 million harvested acres, a 1.2-million-acre spread. That's 98.4% of planted. The 23-year average is 98.3%, so they are actually expecting a larger percentage of the crop than normal to be harvested. At $13 beans, you expect Herculean efforts to get them out of the field and into a bin somewhere.

That expectation for limited harvest or pre-harvest loss isn't uniform. Only 56% of the Oklahoma crop is expected to be harvested, and 66% of the Texas crop. Those reductions are, of course, due to severe drought. South Dakota shows a concession to the flooding, at 94.2% versus the long-term average of 98.4%. Iowa also shows a small impact, down 0.29% from its average. The Missouri estimate shows no impact for the extensive flooding in its northwestern counties, with USDA projecting 99.02% of all Missouri soybeans planted will be harvested versus the long-term average of only 98.05%. This sticks out as a place for a potential future reduction.

On the yield front, USDA shocked trade pundits with a 41.4-bushel-per-acre average. The trade had been looking for a cut to 42.77 bushels per acre from 43.4 bushels in the July report, based on losses tied to high temperatures in the southern end of the growing area. Most had believed it would not go below 42 bushels per acre, based on the crop-condition ratings. However, USDA does not have a formal way of using the crop condition ratings in figuring projected yields.

This was a larger-than-usual reduction from the July armchair estimate, and the lowest Aug. 1 soybean yield estimate since 2008. The table puts the yield estimate in perspective with USDA's historical moves:



The average change from the August report to September is an increase of 0.2 bushels, with five upward revisions and five downward revisions in the past 10 years. As they say, bean yields are made in August! USDA is projecting a U.S. crop of 3.056 billion bushels, on the low end of pre-report estimates.

The other question, of course, is whether we can sell the beans. USDA is clearly optimistic that global demand is strong and that price rationing will occur. It cut projected exports for 2011-12 to 1.4 billion bushels, which, on the surface, would appear to be bearish. However, it was really just a concession to the necessity of maintaining pipeline supplies (ending stocks projected at 155 million bushels) and the reality of increased competition from South America. Planting in the Southern Hemisphere won't get rolling in any volume until September, but $13 beans do get the attention of producers even if they are paid in strong reals or pesos. USDA projects Argentine production at 53 million metric tons (mmt), with Brazil at 73.5 mmt. The Argentine number is an 8% increase from last year; the Brazilian number is down 2.6% from last year but up 1 mmt from the July estimate. The net for the two countries, if realized, would be 2 mmt of extra production and thus competition for U.S. exports.

USDA still sees Chinese imports at 56.5 mmt, making no change in the forecast for 2011-12. There was a small 100,000-ton cut in old-crop carryover for China, and Chinese production was trimmed 300,000 tons. As it stands, Chinese imports would be 59.3% of all global soybean imports, so their consumption continues to be critical to price expectations.

To sum up the soybean situation, USDA issued a supportive crop production estimate and raised its average price range to $12.50 to $14.50, up 50 cents per bushel from last month. November and other new-crop futures were trading below that average estimate, which means cash bids were well below the new expectation. That fueled an immediate rally in soybeans after the report, aided by the market being in an oversold technical situation and resting on chart support as we headed into the USDA numbers.

There are other considerations, such as the volatility in the financial markets (which can pull speculator money onto the sell side at a moment's notice) and the tendency for November beans to drop in the week after the August crop report.

The fundamental underpinnings are there for the market to remain in a trading range until it gets evidence of improvement in crop conditions that could move yields back toward trendline, or evidence that those harvested acreage numbers are too high. The latter might require the integration of the Farm Service Agency county data, and that won't happen until later in the year. Stay tuned!

Alan Brugler may be contacted at alan.brugler@telventdtn.com.

(LS/AG)

© Copyright 2011 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.