Highlights from the June 28 USDA numbers

By Jon Scheve, Superior Feed Ingredients, LLC

On June 28, the USDA released the latest acreage and stocks on hand report, which is arguably the most important of the year. The following are the highlights.

Corn Acres

The USDA is predicting 91.5 million planted corn acres this year. It showed 3.3 million acres still needed to be planted while the survey was collected. However, 2.2 million acres were still being planted during last year’s survey, and that was never a big deal. I suspect the final planted acreage will ultimately end up being around 91 million acres or higher.

Flooding

There have been a lot of flooding concerns this year, which could show up as a decrease in harvested acres on the January report. However, the USDA is using the 10-year average percentage for harvested acres in this report. That means if weather remains normal throughout the U.S. for the rest of the year, less planted acres would be abandoned, which would likely offset some lost acres from flooding.

Corn Stocks

The USDA showed a lot of corn still stored on farms. On-farm stocks were up significantly, except in Nebraska which had a lot of dry weather last year.

Despite the July to September futures contract spread narrowing and basis in the western Corn Belt strengthening this past month, it doesn’t mean there is a corn shortage in the U.S. Most U.S. farmers had at least a $5 per bushel breakeven last year. After two years of high prices, many farmers thought corn values wouldn’t drop below $4.50 for a long period of time. And if it did, they had enough cash reserves to wait for cash corn to go back above $5 and sell at a profitable level.

Now I think a lot of farmers will wait until after the July 4th holiday to see what the weather will be like during pollination. If the weather looks good, some farmers will start moving corn out of their bins in mid-July. If the weather continues to be “normal,” then the balance of that corn on the farm will have to move in August and could mean the downside in the market has not yet been hit.

Corn supply and demand

A carryout/ending stocks of 2,000 million bushels is too much corn for the market to handle and will push values under $4. On the flipside, a carryout closer to 1,000 million bushels would push prices back to $8.

This supply and demand table reflects 91 million acres, instead of the 91.5 number the USDA just reported.

As this chart shows, it will take a significant drought in late July for the average national yield to fall below 175. And, unless carryout drops below 1,750 million bushels, it is unlikely December corn will rally anywhere close to $5.

Bean acres

For the tenth year in a row, the trade overestimated how many bean acres would be planted. With only 86 million acres likely getting planted, August weather will be critical to where prices can go. The USDA did say 12 million acres were left to be planted while the survey was completed, compared to 8 million last year. This may be a factor to watch as the summer progresses.

Bean stocks

Like corn, farmers are sitting on a massive amount of beans waiting for more profitable prices. Most farmers have a breakeven of $12 cash on last year’s crop, which the market hit this past month. Many of these farmers must have seemed convinced a bigger rally was possible and choose to hold on instead of selling.

China

The biggest concern for beans is lack of interest from China. Last year had the second lowest export number of the last 10 years, and now the Chinese have the least amount of new crop beans purchased from the U.S. ever. If things don’t turn around, it will be difficult for beans to rally.

Bean supply and demand

The market gets concerned when carryout drops below 200 million bushels, which can push prices above $14. With 86 million acres shown in the following supply and demand table, it still means for prices to rally there needs to be either a 2 bushel per acre drop in yield or China needs to buy more beans.

Because South America is the biggest producer of the world’s beans, the U.S. is a supplier of last resort these days. That means weather in South America is more important for our prices than we sometime realize.

Bottomline

This report was bearish corn. Unless it turns hot and dry quickly, there is no positive story left for corn this year. Currently, the 2-week forecast is favorable for producing trendline yields throughout the U.S. After the holiday week, some farmers will likely start unloading their bins. And while it may start as a trickle, with only 70 days left until harvest is in full swing, corn’s downside potential seems high going into August.

There are still a lot of questions for the bean market. Fewer acres mean any weather hiccup or increased China purchases could make the market take off. However, if the weather is normal throughout summer and the export pace doesn’t increase, there will continue be downside in the market.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, Neb. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

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