Producers who are still holding on to old-crop corn and soybeans are taking a big gamble, according to analysts. When USDA releases its July World Agricultural Supply and Demand Estimates July 11, analysts expect very few changes and say the risk for new-crop prices longer term is to the downside.
"This will not be a new-crop report," says Rich Nelson, chief strategist with Allendale, McHenry, Illinois. And while some people have questioned USDA’s latest corn acreage figures, Nelson says USDA has never changed the acreage numbers in the July WASDE report for either corn or soybeans.
In its June 28 Acreage report, instead of reducing corn plantings by a significant amount, USDA actually raised acreage to 97.4 million acres, the highest planted acreage since 1936’s 102 million acres. The planting estimate came in well above the average trade expectation of 95.3 million acres.
Dan O’Brien, agricultural economist with Kansas State University, also does not expect to see any changes in the acreage numbers. USDA is currently undertaking another survey of soybean plantings that will be reported in the August WASDE report, and corn acreage could also be adjusted at that time, he says.
Yield estimates are also likely to be left unchanged. "In 12 of the past 20 years, no changes have been made to the new-crop corn yield," says Nelson. Allendale estimates that USDA will reduce overall corn production by 55 million bushels to 13.95 billion.
Old-crop corn ending stocks will also likely be cut to 719 million bushels due in part to improving exports, according to Allendale.
"We have picked up a few sales, which the trade was not expecting," says Nelson. "But we are past the point where changes in old-crop will be market movers. Price changes will be reflected in basis, not futures."
Sell, Sell, Sell
Nelson recommends that producers sell whatever old-crop supplies they have on hand, and think seriously about locking in a portion of new-crop sales.
"Many producers west of the Mississippi are in complete anger at the thought of selling grain. They think the Acreage report was wrong," says Nelson. While there is some concern over dryness in parts of Iowa and Nebraska, the eastern Corn Belt has a great crop, and the crop is improving in states like Minnesota, where spring was excessively wet, he adds.
In a typical year, Nelson notes that many of Allendale’s customers have 25-50 percent of their new-crop corn hedged by now. But this year, he says, only about 10 percent on average is hedged.
O’Brien says the old-crop supplies that still remain on farm are gambling stocks. "The odds are we have decent crops," he says. However, it makes more sense to hold wheat stocks than corn supplies, O’Brien adds.
"It is possible that we’ll see $4 per bushel corn and $6 per bushel wheat this fall, but $7 corn and $6 wheat is not possible," O’Brien says.
Pre-Report Analysis of July 11 Reports
Find out what the big news could be with Thursday's USDA World Agricultural Supply and Demand Estimates and Crop Production reports.