This week’s USDA reports provided two pieces of price-plunging news: larger-than-expect grain stocks and record acreage estimates.
Following Thursday’s Prospective Plantings and Grain Stocks report, prices head south…way south. Corn prices dropped the most in nine months, which caused a domino effect for soybean and wheat prices.
Here are the highlights from USDA’s market-shaking March 28 reports:
Corn: 97.3 million acres of corn in 2013, which is up slightly from last year and 6% higher than in 2011. If realized, this will represent the highest planted acreage in the U.S. since 1936.
Soybeans: 77.1 million acres in 2013, down slightly from last year but the fourth highest on record. Compared with 2012, planted area is down across the Great Plains with the exception of North Dakota.
Wheat: All wheat acres are estimated at 56.4 million acres for 2013, up 1% from 2012. The 2013 winter wheat planted area, at 42.0 million acres, is 2% above last year and up slightly from the previous estimate.
Cotton: 10.0 million acres for 2013, 19% below last year.
Corn: Stocks in all positions on March 1, 2013 totaled 5.40 billion bushels, which compares to 8.03 billion bushels on Dec. 1 and 6.023 billion bushels on March 1, 2012.
Soybeans: Soybeans stored in all positions on March 1, 2013 totaled 999 million bushels, down 27% from March 1, 2012.
Wheat: All wheat stored in all positions on March 1, 2013 totaled 1.23 billion bushels, up 3% from a year ago.
Jerry Gulke, president of the Gulke Group, says the shocker in Thursday’s report was the dramatically slow pace of corn usage. "We basically found about 3 million bushels of corn in storage that we didn’t know we had," he says. "Now we are 6 months into the marketing year and found this corn."
Either demand has been hurt much more than previously recorded, or USDA underestimated the 2012 corn crop. Regardless, this provides some near-term price direction.
He says this news pretty much solidifies the fact the record-high prices of corn and soybeans in 2012 won’t carry over into 2013. "Going forward $7 corn is going to be a figment of our imagination," he says. "But, now we know that." He encourages farmers to use these price expectations to determine cash flow needs, what land is worth, how much to pay for a equipment, etc.
This comes as helpful news to the end users of corn. "We know we can’t use $7 corn for livestock or exports," Gulke says. "So the good news is we saved our livestock and ethanol industries."
Gulke also believes the drop in prices will start attracting back export customers. "We can say we had a hiccup with the drought, but we’re back in business," he says.
"The best thing that could happen to us now is we get a good crop and have enough to supply demand," he says. "We can build demand back before we have to worry about 2014."
Hear Gulke's full audio analysis:
March 28 Prospective Plantings, Grain Stocks Reports
See all of the report data, coverage and analysis of USDA's March 28 Prospective Plantings and Grain Stocks reports.