The poor corn market has been hit with a double dose a bad news of over the past week and any bulls that had been remaining were probably ordering a double last night as they tried to numb the pain just a bit. As I suspect you are aware, once again the USDA surprised the industry in both the grain stocks and acreage numbers and while the reaction in beans was positive and maybe over-exaggerated it was the opposite for the corn market and ideally over-exaggerated as well. Granted, the value of pre-report surveys is to provide a sentiment of what the trade has possibly factored into the current price structure but I think it is important to keep in mind on this acreage report especially, the focus should really be on the shift from the March estimate as that is what the existing supply/demand projection is based on. For example, the 94.1 million corn acre estimate was 1.4 million above the trade estimates, which was a surprise but at the end of the day was only a 500,000-acre boost from the March estimate. Taken a step further, when you look at the states with the largest increases in acreage, they are not in the heart of the country where you find the largest yields and in fact several of them have been experiencing less than ideal weather this year which would lead credence to the idea that the yield currently projected by the USDA is far too optimistic. On the June supply/demand corn production was projected to be 14.43 billion. This was arrived at using a harvested acreage of 85.9 million and a yield of 168 (third largest on record). Now we have been informed the harvested acreage will be 86.55 million (94.15 planted) so the question is how much of a drop in yield would it take for the increase to not even matter? Simple math would tell us 1.28 bpa. So, less than a bushels and a half drop in yield and all this fuss about larger acreage was for naught. Of course a real bear would counter that the grain stocks were around 190 million bushels above estimates so we are going to be dealing with potentially larger carry-in. Okay, assuming none of this is eaten up in projected usage then it would mean yield would need to slip another couple bushels to compensate so ultimately a yield around 165 would completely eat up any of the changes made yesterday. Keep in mind that 164.7 bpa currently stands as the third highest yield on record and with all the talk this past spring of producers opting for lowest prices hybrids, less fertilizer and some of the weather problems already being experienced, yields at the mark or below seems well within reason.
What would happen when we do this same exercise in soybeans. Yesterday Uncle Sam told is that producers planted 83.7 million acres. This number was around 300,000 below the trade estimate but 1.5 million above the March report. Just from a raw figure it is a bit challenging to call that bullish but here again, it will be all about the yield. The current number being used by the USDA for beans is 46.7 bpa, which would be the third highest on record. With the new harvested acreage of 83.037, if yields were left unchanged it would project a total crop size of 3.878 billion or an increase of 78 million over the current estimate. So, how much yield loss would we need to see to eat that up? 9/10th of a bushel. In fairness, the grains stocks number was 37 million higher than estimates and assuming it could possibly be tacked onto the beginning stocks we better say yield would need to slip by 1.4 bpa to wash out the changes. So, that works out to 45.3 bpa and guess what…that is still the third highest yield on record by 1.3 bpa. Just for fun, if we drop the yield to that number which is 44, we would end up with production of around 3.65 billion and a possible carryout sub-200 million.
So, the point in all of this is to say, it would appear that the move corn and bean markets yesterday was probably a bit over exaggerated but do not lose sight of the fact that weather over the next 60-days is all that really matters for now.