What Was Behind USDA’s Big Corn Yield Cut? USDA Chief Economist Explains
USFR-RT1 1.16.21
USDA's crop reports made some major changes to the supply and demand balance sheets this week. From showing a tighter stocks to use scenario in soybeans, to a historic cut to the national corn yield, the adjustments provided more fuel to the commodity markets.
“I think the biggest number was the 3.8-bushel yield reduction in the size of the 2020 corn crop, and you put that together with the backward adjustment of September 1 corn stocks — down by 76 million bushels — which by itself wasn't that much, but when you add in the big slashing of the [overall] corn yield, that really changed the game,” says Arlan Suderman of StoneX.
Suderman points out the markets the past few months have been driven by the story in soybeans. As a result, corn and wheat acted as a price follower with soybeans carrying corn and wheat prices higher. That story has now changed and is similar in other crops.
“Now, suddenly corn safety margin is gone,” says Suderman. “If we have a short crop in South America, if we have a hot, dry summer Midwest, we have don't have the safety margin, there's suddenly corn and now battling with soybeans.”
Suderman says this comes at the same time Russia is nearly doubling its export tax on wheat, which is adding more fuel to wheat prices.
“All of a sudden you've got all three commodities involved, and who wants to be short right now — from a speculative standpoint — in this market? That's what added fuel to the fire,” says Suderman.
Seth Meyer is the new Chief Economist for USDA. He understood some of the angst about such a large yield reduction for corn late in the year, but he says USDA’s National Agricultural Statistics Service (NASS) used the information provided as it came in, which caused a big reduction late in the year.
“Why did it take so long? It’s a combination of things. there's information coming in. I'd also argue that we started out this year with what looked like an amazing crop. And then we got a little later in the year, we had some troubles around the country as well,” he says. “NASS uses the information as it comes in, and in this case, you ended up with what is one of the bigger changes [to yield] very late in the game.”
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