Chip Flory: Corn: Tight Margin of Error

March 25, 2019 01:38 PM
 
Crop insurance first planting dates for corn are right around the corner and soon crop-watchers will form early season expectations of how 2019 corn yields will differ from trendline expectations.

Seed is going in the ground in southern states and winter in the Midwest is (technically) over. Crop insurance first planting dates for corn are right around the corner and soon crop-watchers will form early season expectations of how 2019 corn yields will differ from trendline expectations.

At the annual Ag Outlook Forum, USDA took its first shot at laying out expectations for the 2019/20 marketing year. Compared with a year ago, USDA surprised nobody with the increase in expected corn plantings and drop in projected soybean acres. USDA projected 2019 corn plantings at 92 million, up nearly 3 million from 2018. A “normal” harvested acreage percentage and a national average yield equal to the trendline projection of 176 bu. per acre would produce 14.89 billion bushels.

On the demand side, the early line on 2019/20 corn use is 15.015 billion bushels. With beginning stocks also down a bit from the current marketing year, ending stocks of corn would slide from the current marketing year, even with the increase in acres, according to USDA.

Now toss in some variables. This winter trade chatter said it would be difficult for corn growers to push acres much higher than a year ago. Fieldwork and fertilizer applications went undone in fall 2018, narrowing the planting window this spring. But even if corn acres are 1 million shy of the 92-million-acre projection, a national average yield just 2 bu. higher than trendline would replace those lost bushels. That’s why risk managers featured on “AgriTalk” heading into the planting season were in general agreement that a “planting-scare” rally in corn this spring should be used as an opportunity to increase 2019-crop corn sales.

Most of the risk managers also said 2019 is a year to maintain pricing potential because of yield risk. A record-yield assumption means a high percentage of the 2019 corn crop will be sold when December corn futures hit $4.20—the most common target for a “starting point” on sales.

If 93 million acres are planted to corn this year, harvest acres will total about 84.5 million. Adding 1 bu. to the national average corn yield of 176 bu. per acre adds about 85 million bushels to total supplies. Conversely, each bushel short of 176 bu. per acre would cut about 85 million bushels from total supplies. The most important question to answer: Is it easier to add to 176 bu. per acre, or take bushels off the national average?

It will take more than a planting-delay rally to answer that question. But if midsummer stress threatens to cut the national yield to 170 bu. per acre (just 3.4% below trendline), total supplies would be cut by half-a-billion bushels. That would demand a usage slowdown—and higher price is the only way to slow use.

That “tight margin for error” has convinced risk managers this is the year to maintain upside price potential for corn, even if hefty sales are made on an early rally in December futures to $4.20.


All episodes of “AgriTalk,” as well as other Farm Journal broadcasts, are available on demand via the “AgriTalk” app. Download the app for free on Apple and Android devices. Learn more at www.AgriTalk.com

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