The words “potential” and “percentage of potential” have been bounced around during this unprecedented growing season. While tariffs and weather have had their influence on price volatility this year, the various USDA reports might come into question the most as time progresses.
The monthly WASDE reports have created consternation among traders, producers and end users this year. Even with slow crop maturity, the September report gave some semblance of an effort to redeem previous vagueness.
Consider these important points:
- Crop analysis was hampered by little experience with a super-wet year. Past weather markets were due to hot/dry weather, which are more quantifiable and visual. The “rain makes grain” attitude dominated the trade.
- USDA used producer ideas on crop quality for the August and September reports. As a result, USDA reported unverified positive sentiments and will attempt to quantify or disqualify those results in the October report.
- USDA was vague on prevent planting acreage results.
- The tariff payment program that said “if you don’t plant, you don’t qualify” led many astray to plant late.
- Drive-by analysis showed good-looking crops. Producer field analysis was put off due to late maturity and best guesses overshadowed the crop's reality.
- Modern seed technology was thought to mitigate crop problems. However, high-tech seeds likely won’t overcome late-planting problems.
- The September USDA report was positive, creating technical price reversals for corn and soybeans. This could mean the harvest lows are behind us, suggesting the potential versus reality has started to look like 2009.
A History Lesson
The 2009 season started out late, but planting recovered much quicker than this year. Prices peaked nearly the same day in June 2009 as in 2019. Also, the total weather price rally vanished by late August for both years. The markets didn’t realize the production problems until combines rolled, and USDA confirmed it in the October report.
Prices rallied until the November report but did not top highs made in June 2009. Prices declined into the July 2010 crop report, retesting previous low prices on ideas of a huge quantity increase for the marketing year 2010. Whether 2019 turns out to be the mirror image of 2009 remains to be seen. But there is some rationale that the poor assumptions made in 2019 will take time to rectify.
Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.