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By Jon Scheve, Scheve Grain
The biggest report of the year turned out to be a bit of a dud. Normally, this report produces 15 to 20-cent moves in corn and 25 to 30-cent moves in soybeans. Both markets showed signs of a big rally during the first 10 minutes of trading, but those gains quickly faded before the market closed on report day. The following day’s rally was encouraging, but was it simply short covering ahead of the holiday weekend?
Overall, the report was neutral for corn relative to pre-report expectations, but that doesn’t necessarily mean prices have to rally from here. I was disappointed that the USDA left corn acreage unchanged. However, the agency did include this special note with the report:
“The current estimates for corn and soybean planted acreage are based on survey information collected prior to the completion of planting and are subject to normal survey variability. Based on 20 years of historical information, the final corn planted acreage estimate has a 90 percent chance of falling within 2.5 percent of the current estimate of 95.3 million acres, indicating a likely range of 93.0 million to 97.7 million acres. Similarly, the final soybean planted acreage estimate has a 90 percent chance of falling within 3.0 percent of the current estimate of 85.4 million acres, corresponding to a range of 82.8 million to 87.9 million acres.”
My interpretation of this statement is that corn acreage could still change in the August and September reports. If planted corn acres ultimately climb above 97 million, then December corn is likely headed below $4.00. On the other hand, if acreage falls closer to 93 million, corn would likely need to rally well above $5.00, with the potential for even higher prices.
If corn acreage changes in future reports, it would also stand to reason that soybean acreage would move in the opposite direction.
Last year, the USDA increased corn acreage in the August and September reports after incorporating additional data from the Farm Service Agency (FSA). At the time, planting more corn than soybeans made economic sense because corn offered the better return. That wasn’t the case this spring.
It’s possible the USDA simply chose not to make significant acreage changes in this survey-based report while waiting for more complete FSA data. Response rates to producer surveys have been declining, and the agency will have much better information available over the next two months.
If acreage shifts substantially again this August and September, as it did last year, this June report will lose much of its importance. Instead of reacting to the June survey, the market may simply wait for the more complete acreage data released later in the summer.
Please email jon@schevegrain.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 25 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 15 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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