After USDA Released January Reports, What is the Market’s Focus Now?

04:50PM Jan 10, 2020
USDA Report
The case isn't closed on 2019 production, but how much of a market impact could that have in the months ahead?
( MGN )

USDA releasing a slew of reports Friday, including what the agency calls “Crop Production 2019 Summary.” However, the case isn’t closed on 2019 production, as USDA acknowledged it will resurvey producers in six states for corn production and three states when it comes to soybeans. So, even though the January report is typically the final crop estimate for the year, market analysts say USDA’s report this year isn’t the end of the story.

“I think the market realized that as well and the initial price response, but we're certainly not done calculating what the 2019 crop is,” said Erin FitzPatrick of Rabo AgriFinance. “There are six states that will be resurveyed for corn because there was still 8% of the crop unharvested, and another three states will be resurveyed for soybeans.”

Heading into the report, much of the market chatter was the report could be bullish, as USDA would probably lower yield. The opposite happened. USDA raised the national yield for both corn and soybeans.

“I think when you have the 168 bushels an acre [yield] on corn, it was offset by a bigger than expected implied domestic use out of the grain stocks report,” said Seth Meyer of University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI). “So, we got a little bit more supply, but use was a little bit higher than expected. Then, carryout is not so much out of line with what folks to expected even on the low end. So, the market said, 'Okay, we're going to look at this, despite the increasing yields, not a big decline in prices.'"

FitzPatrick says there were two main takeaways out of USDA reports released Friday.

“One is we're not done seeing what the yields and actual area was for corn and soybeans,” she said. “Then two, I think it's really the underlying demand. We've seen relatively high cash prices throughout the U.S., especially on corn all season. I think this demand number really confirmed that the domestic feed market is really what's driving U.S. corn demand going forward.”

“I think some folks will look at the implied use, and also say USDA is overestimating the crop,” added Meyer. “While some will say there’s still standing corn in the Dakotas, the yield has to go lower, I just want to caution folks that NASS doesn't just pretend that that crops going to come in perfectly whenever they get around to harvesting it. And truth be told, there's a large amount of corn and in some states, we talked about North Dakota, they're holding 1.4 million bushels of additional corn and stocks compared to this time last year. That's not corn sitting in a bin, that's corn standing in the field. But NASS is making some adjustment, they don't just pretend that's all going to magically come in perfect.”

Meyer doesn’t know exactly when USDA will release the results from the agency’s resurvey, but  he doesn’t think USDA will sit on the numbers long. Meyer projects USDA will release that information in an upcoming report.

So, as the market shifts away from 2019 and focuses on 2020, what is the market focusing on now?

“I think after digesting this report, we're very quickly going to start talking about 2020 plantings,” said FitzPatrick. “What we've seen has been pretty big divergence in crops. The eastern Corn Belt had a pretty good harvest. The fields that did claim prevent plant there and planted cover crops, they got a lot of field work done this fall and they are ready to roll in the spring. The Northern Plains and the areas that are being resurveyed, those producers have a lot of harvesting to do before they can even start planting.”

She thinks the market will start to focus on what the situation means for planting decisions and intentions for the 2020 crop year. Both analysts agree the crop size could get much bigger in the new year.

“I think if you if you go back to farmers getting into the fields, you don't have this prevent plant, and they get into field and plant the acres they want; assuming we have a trend yield instead of something that's maybe a little bit below trend, you're talking big production bump. And that's if we don't find some way to use it domestically or export it,” said Meyer. “We're going to have some big supplies on hand. And not just for corn.”

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