USDA May Be Set To Deliver Knock Out Blow To Bulls

Ray Grabanski President of Progressive Ag certainly thinks so. He thinks that their Aug yield estimates were far too low. Take it away Raymondo......

Two weeks ago I talked about the potential for soybeans to run to new lows in the coming weeks as we moved towards harvest, and I took a fair amount of heat in chat rooms and emails from across the country as markets were in a mini-bull trend at the time.

But as President John Adams said two hundred years ago, "Facts are stubborn things!" Today we sit at new lows not only for soybeans, but also wheat (and can corn be far from there?). The corn and soybean crop had improved so much from our disastrous start into June that Pro Ag yield models were suggesting a near record large corn crop and record large soybean crop. Its difficult to rally a market with those kinds of facts behind it. While we had a brief bout of dryness in some substantial growing areas to end August, most of those problems are solved by Sept. 10 and so far there is no sign of a widespread killing frost for late developing crops. In a nutshell, there was only one week where either corn or soybeans had any significant deviations from a steady rise in yield potential since June, and its just tough for bulls to overcome those facts.

Add to the bulls problems that crude oil has dropped nearly 30%, dragging almost all other commodities with (note silver is worth almost half its highs a year ago!) including metals, grains, livestock, and virtually the entire CRB index full of commodities. About the only thing still worth more than it was at any time is fertilizer, and isn't it just a matter of time before the fertilizer bulls get their heads handed to them too?

Last month's USDA report was considered bearish, and markets rallied from it sharply. But the situation was so different last month than in September! First of all, corn prices had dropped nearly $3 into the report. Even though the report was negative (no one expected a 155 bu/acre report!), prices rallied after it because we had dropped too far, too fast and every informed trader was already short heading into the report. Virtually every other analyst (except Pro Ag) proclaimed 155 bu would be the largest estimate of the year - how could the crop turn around so quickly from the June disaster??? But turn around we did, as facts are indeed stubborn things. Pro Ag yield potential/estimates have risen from August to near 159 bu/acre, so we fully expect (as does Informa) that numbers will rise again from 155 bu/acre, forcing bulls to eat their bullish words since the August report. Indeed, if we get a late frost allowing ND, SD, IA, MN, and WI corn crops to mature (as is almost certainly going to be the case for soybeans), then we very well might have record large yields in these states. With corn prices up 30c or so yet from the August report, bulls are especially vulnerable in this report, especially since most believe USDA/fund buying will rescue them once again in September as they did in August.

But how can USDA deliver anything but a negative report in September??? They already dropped the soybean estimate in the August report (an ill conceived direction) while yield potential expanded, and now it appears to Pro Ag that USDA will now have to make large soybean yield hikes (1 bu/acre???) not only in the Sept report, but also likely in Oct. and Nov as well in order to get up to our current yield estimate of 43.35 bu/acre (a new record large yield). $10.50- $11 soybeans is beckoning to call, and it won't be a pleasant meeting for bulls! USDA could very well deliver the knockout punch to market bulls that they have been eluding since the Aug. 11 report. But as John Adams said centuries ago, facts are indeed stubborn things! And the fact is that the US corn and soybean crops are very good in 2008 - perhaps not record large (especially if a normal frost occurs), but good enough to add significantly to current carryout numbers. $4 corn and $10 beans may be waiting in the wings for market bottoms this fall. Pro Ag can turn bullish once these levels are hit, but today is certainly not the time to do so even with new recent lows in soybeans. Facts are indeed stubborn things which bulls (and bears) always must deal with. Once we deal with the 'facts' of a 159 bu corn crop and 43.3 bu/acre soybean crop, then perhaps the bulls can regain their upper hand but for now, the facts are in favor of the bears.