KANSAS CITY, MO. — Corn and soybean futures are holding strong despite the US Department of Agriculture’s (USDA’s) recent forecasts that both 2021 crops will be the second largest in history, and there are several additional bearish indicators that suggest prices should be lower.

Instead, corn, soybean and wheat futures have traded at multi-year highs this year, including nearby Kansas City and Chicago winter wheat contracts setting multi-year highs and the Minneapolis spring wheat future setting an 11-year high in the first half of November.

Some analysts are at a loss to explain the bullish sentiment in corn and soybean markets given strong production and dimming prospects for US exports due to favorable weather in South America for both crops with the key Brazilian soybean harvest that will hit the export market in a couple of months expected to be record large. The 16-month high in the value of the US dollar last week adds still more bearishness to exports as it makes US grains more expensive to foreign buyers. China’s purchases of US soybeans and especially of corn have been slow relative to earlier in the year, another bearish factor in the markets.

The USDA in its November Crop Production report estimated 2021 corn production at 15,062 million bushels, up 0.3% from its October forecast, up 7% from 2020 and the second highest on record if realized after 15,148 million bushels in 2016. Average yield based on Nov. 1 conditions was forecast at a record-high 177 bushels per acre, up 0.5 bushel from October and up 5.6 bushels from 2020. Area harvested for grain was forecast at 85.1 million acres, unchanged from the prior forecast and up 3% from 2020.

The USDA corn production and average yield forecasts both were slightly above the average of trade expectations, but corn futures still moved higher after the reports.

“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 concerns about drought in some key growing areas during the summer.

In addition to the large crop, Meyers said other bearish features of the corn market included declining export prospects, strong corn production in South America and declining US livestock numbers, although he noted demand overall has held up well. Supporting corn prices have been increasing use of corn for ethanol, possible concerns about La Niña on South American production and ideas that US farmers may plant fewer acres to corn in 2022 due to sharply higher production costs and higher fertilizer prices in particular.

The USDA in its World Agricultural Supply and Demand Estimates (WASDE) report on Nov. 9 projected the carryover of corn on Sept. 1, 2022, at 1,493 million bushels, up 21% from this year. Meyers expects carryover for 2022 may rise another 100 million bushels if exports are lowered in subsequent WASDE reports, which he expects.

“I thought we would see more weakness with a 1.5-billion-bushel carryover,” Meyers said. He expects March 2022 corn futures to fall into the $5.30-to-$5.40-a-bushel range from around $5.70 last week, “especially if South American weather is favorable.”

“It’s a puzzle,” he added. “Not just for corn but also for soybeans.”

US soybean production in 2021 was forecast at 4,425 million bushels, down 0.5% from October but up 5% from and the second highest on record if realized after 4,428 million bushels in 2018. The average yield based on Nov. 1 conditions was forecast at 51.2 bushels per acre, down 0.3 bushel from October but up 0.2 bushel from 2020. The forecast average yield also would be the second highest on record. Harvested area was forecast at 86.4 million acres, unchanged from the prior forecast but up 5% from 2020.

The USDA projected US soybean carryover on Sept. 1, 2022, at 340 million bushels, up 33% from 2021. A 40-million-bushel drop from October in forecast exports for 2021-22 more than offset a 23-million-bushel reduction in estimated 2021 soybean production.

The USDA’s soybean production and average yield forecasts both were below the average of trade expectations.

“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 data doesn’t add up to $12.50-a-bushel soybeans,” Meyers said. He expects the March soybean future to trade down into the low-$12-a-bushel area. That would equate to soybean oil futures around 56¢ to 57¢ a lb from around 57¢ currently with the oil share of the soybean crush recently declining.

Wheat futures, meanwhile, are providing spillover support to corn and soybean futures on shrinking global wheat supplies. Wheat supply and use forecasts, especially global numbers, have been growing more bullish. The USDA in its Nov. 9 WASDE report forecast 2021-22 global wheat ending stocks at 277.18 million tonnes, down 4.2% from 2020-21.

The corn crop was 91% harvested as of Nov. 14, behind 94% at the same time last year but ahead of the 2016-20 average of 86%, the USDA said in its weekly Crop Progress report. The soybean crop was 92% combined by the same date, slightly behind 95% a year ago and 93% as the five-year average. The USDA doesn’t update corn and soybean production estimates in December, so the next update will be in the Crop Production 2021 Summary in early January.

With the United States’ two largest crops largely “in the bin,” or of known size, USDA forecasts are unlikely to see major revisions in January. So, changes in the market will require a bump in demand or adverse weather in South America to trim corn and soybean supply prospects.

“I don’t have a good explanation of why prices haven’t come off more,” Meyers said, noting that “the bulls may be counting on bad weather in South America.”