Current Marketing Thoughts
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Are You Ready for the Big Report Tommorow?
Mar 29, 2012
As we head into Friday's highly anticipated USDA report, I find myself fielding multiple calls and questions about the planted acreage estimates and yields currently being thrown out by the USDA. As producers we want to argue that the estimates are too high, but be careful NOT to take on a speculative mindset or allow yourself to fall into the adversarial role of battling the USDA and their analysis. I am telling you now there is a very strong chance the USDA acreage estimates in all three major crops could be higher than many of us are willing to recognize. Obviously the large number of "preventive plant" acres from last year will be filtering back into the marketplace. Yes, we had 91.9 million acres of corn and 75 million acres of soybeans, but you have to remember we also had over 10.5 million acres that went into "preventive plant" because of extreme weather conditions and the inability for producers to get into the fields. If you look inside the numbers you will see the Northern Plains had over 7 million of those "preventive plant" acres. With very little snowfall and limited snowmelt up north, I have to imagine there will be a huge drop in "preventive plant" acres. Not to mention, I am hearing more talk about some additional pastureland and grassland moving into production. We also can not forget a small amount of CRP ground will also be coming back into production. Net-net, 96 million corn acres and 76 million plus soybean acres can NOT be ruled out of the equation.
The question we need to ask ourselves though is where will these extra acres be added? From my perspective corn acreage in Iowa and Illinois seems to be staying somewhat stagnant, while the jump in production will come from the Dakotas, Minnesota, Kansas, etc. Many sources actually show as a percentage of US corn production, states like Nebraska, Wisconsin, Indiana and Ohio have been slowly decreasing their corn production as a percentage of overall US corn. What I am trying to point out is that the corn yield estimate at 164 bushels per acre may actually be too high based on where the growth in planted acreage is going to occur. Something we need to realize though is that the USDA historically has a tendency to move yields even higher in the wake of early plantings. Therefore, the "bulls" may be highly surprised and left kicking and screaming when the yield estimates actually move higher (166-167bpa) in the next couple of months. If this play out, (higher acreage estimates and higher yields) producers will want to carefully monitor prices and may want to consider lifting hedges or re-owning bushels on the major price break, thinking that the overall yield may actually be significantly lower when the crop is finally harvested and the numbers totaled. Just for what it is worth, the past 10 years of US corn data shows an average yield of about 150 bushels per acre.
You have to understand, the way the USDA now equates yield estimates is somewhat different than it was several years ago. From what I have heard, the USDA had always used the previous 47 years of yields to determine their estimates, then in 2008 that all changed, as they chopped the data down by more than half. In fact there is talk circulating now that the USDA decided to throw out last year's corn production estimate (of 147.2 bushels per acre), because they deem it to be an extremely "abnormal" year. Now how in the world can you throw out the bad data while keeping the good data in the equation? I understand the triple-stack traits and improved genetics could produce a huge gain in yields, but we still have a lot of hurdles to clear, and lets not forget, some "old crop" bushels to find... of which many will argue do NOT even exist. The US Soy balance sheet may not hold as much influence over the markets as it once has, because of the massive growth in South American production, but I promise you the US corn balance sheet still holds the hammer for global corn pricing. All I am saying is be careful getting yourself overly bearish based on the fundamental "supply and demand" numbers that may be getting ready to come down the pipe. I would take on the attitude of becoming more of a bargain shopper, looking for extreme price breaks as an opportunity.
Soybeans continue to get a boost from lower production estimates being thrown around in South America. From what I hear yesterday an analyst with the farm-services company Lartirigoyen seems to be thinking the Argentine soybean crop may now be just 42.6 million metric tons. This is well below the USDA's current estimate of 46.5 million metric tons. Keep in mind we started out the year with the USDA estimating Argentine soybean production at 50.5 million metric tons. As you can see the market continues to chew on lower and lower South American soy estimates.
Here at home I have heard from several seed dealers who have been picking up corn seed and dropping of more soybean seed to producers who are making a few last minute changes. I am not sure how significant or widespread these changes are, but in parts of Illinois, Iowa, Missouri, etc... I am definitely seeing a few coaches make some last minuet adjustments to their lineup card. The biggest last minute change I have heard of so far comes from a producer in southern Illinois who is switching out 1,000 corn-on-corn acres back over into soybeans. I am also hearing from some producers who are going to flip a few rice acres over into soybeans. I took a lot of slack form a few of my trading buddies several months ago when I first threw out the thought of US producers planting 76 million acres, now I am starting to worry that number is too conservative. Unlike corn, I believe the shift in additional soybean acreage is occurring in areas that can produce good yields.
I am NOT turning bearish soybeans, I am just thinking fundamentally we might see a few bearish cards come out of the deck in the next couple of months that could produce a few breaks, and give spec's some additional buying opportunities. Money-flow is certainly behind this trade longer-term, but some of the funds may get cold-feet if the US balance sheet starts to look less "bullish" on more acreage and improved growing conditions. As I mentioned earlier in the report, I personally do not believe the US soy balance sheet carries nearly as big of a stick as it once did, therefore I would prefer to bargain hunt on any breaks, looking for the short supplies on the tail-end of 2012 to drive prices higher, before new crop South American production becomes a more pressing concern (that is an entirely different story).
There is definitely a chance the USDA report could turn out to be "bearish" for corn, wheat and even soybeans, but I am NOT going to make any hasty marketing or trading decisions on the break. If your a spec, there could be some definite bargains to be had. Producers should sit pat, this is why we have been selling into the rallies and have been reducing risk throughout the year. You have to be able to ride out the rapids when the river turns rough.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing, especially ahead of Friday's USDA Report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -