MINNEAPOLIS — A knuckleball was thrown at the commodity market June 28 when the U.S. Department of Agriculture shocked analysts with fewer soybean planted acres than expected and more corn acres.
USDA set corn planted and intended planted acres at 91.7 million and soybeans acres at 80 million. The quarterly grain stocks report also was released that same day, indicating a 2% drop in corn stocks from last year, 47% increase in soybeans stored and 2% less all wheat stocks compared to a year ago.
“That is a major surprise to the trade. They were looking for a reduction of about 6 million corn acres, and we saw only a reduction of about 1 million. That’s 2.6 million more acres than a year ago. The soybean acres are 4 million below the average trade guess, 9 million less than a year ago and the lowest since 2013,” said Brian Hoops, Midwest Marketing Solutions president.
“The acreage report is bullish for soybean, bearish for corn. However, I think a lot of people are kind of discounting these numbers. These were surveys done in the first couple weeks of June and may not have actually transpired based off of farmers’ intentions and weather in the last couple of weeks of June may have altered those plans.
“We’ll definitely see an adjustment at some point down the road. It could be quite some time before that happens. The USDA is talking about doing a resurvey of soybean acres and that could show up at any time possibly in July. We won’t really know the answer until August when the Farm Service Agency reports prevent planted acres.”
Hoops broke down the surprising report in a teleconference hosted by the Minneapolis Grain Exchange.
Does this report confirm what you’re hearing from your clients?
We have offices in 10 states all over the Midwest and we have clients from all over and they were telling us that because of the rally in the corn market they were inclined to plant more corn acres than what they had, if conditions were fit. That is the key to what the trade is uncertain about is what type of conditions are out there.
But certainly the mindset of the farmer was after a 90-cent rally in corn prices to reward that market with more corn acres, and that’s what the corn market was trying to do. That’s exactly what happened according to these survey results.
The conventional mindset would be if we were able to not plant corn we would switch it over to soybeans.
But soybeans did not participate in the rally to the extent the corn did, and I think that’s why producers elected not to plant soybeans.
I think they’re looking to take the prevent plant option on the soybeans rather try to mud the crop in because the price structure is not as strong for soybeans compared to seeing $4 cash corn opportunities.
What was the market’s initial reaction to the planting estimates?
It was a very active day with this surprise from the government. Obviously, we’re seeing a lot of weakness in corn, and that’s spilling over into wheat.
Corn is what everything has pretty much hinged on here recently. The rally was predicated by corn. The soybeans and wheat followed the market higher, but it’s all been about this corn market over the last 30 days or so.
What were some of the highlights of the wheat acres and stocks reports?
We didn’t have a tremendous amount of surprises for wheat. Spring wheat acres were down just slightly from the average trade guess. Overall wheat planted acres is the lowest since 1919. But I think what the wheat market is focused on is the quarterly stocks numbers.
Wheat stocks of 1.072 billion bushels is a little bit less than the trade guess and last year’s levels, but this is the fourth consecutive year that we’ve hard quarterly stocks for wheat over 1 billion bushels. Prices are going to suffer when you have that type of a big stocks number.
Quarterly corn stocks were down slightly and soybean stocks were up substantially from June 2018.
Soybean stocks were less than the average trade guess, but still all-time record large. Corn stocks were one of the largest in the last 30 years. So, we have plenty of stocks on hand.
In talking to producers, they have been making sales of corn on this rally, so the market has done its job of prying some corn away from farmers.
The fact that we did see some deliveries overnight is telling us that maybe we have enough supplies for now of corn and we just have too much of a supply and not quite enough demand to work through the supply.
What does all of this mean in terms of marketing going forward?
I think from a producer standpoint if you mudded your crop in and at this time you’re really unsure what type of yield you’re going to get, you’re going to be very hesitant to be making any marketing decisions. Any cash sales will be very slow coming forward from a producer.
You won’t have a lot of pressure against the market or any real hedge pressure. They most likely will use the options or futures market to try and manage the risk accordingly, but producers are certainly going to be gun shy about making any sales with prices well off their annual high so far — almost 50 cents off those highs — and very uncertain about what type of yields they’ll end up with in the fall.
In terms of short-term basis, is the market going to react with that after the price goes down to drag any corn out that’s left in bins?
Yes, I think so, and the fact that we have our river system open once again we should see some export demand pick back up and that should help basis improve as well.
I think you’ll see a real focus on end-users here trying to step in and buy some futures contracts, probably some old crop July; take those deliveries if they do have a real need for the demand. They certainly will use it on some price weakness like we’re seeing.
Going forward, if we do have a very short crop which is still likely given our poor start to our growing season I really think you’re likely to see basis throughout the winter months really try and improve.