Down For the 8 Count
Apr 01, 2016
The USDA delivered the corn market a devastating punch yesterday and while it may have not been a knockout blow, it certainly took this market down for the eight count. 93.6 million acres, anywhere from 1.6 to 2.6 million above the highest private estimates, depending on which ones you wanted to reference and what would be the highest corn acreage number since the 2013/14 crop year. In the aftermath of the release, we saw spot corn press back below 3.50 for the first time since the January lows. Does this mean the numbers are so stacked against a price recovery now that all hope is lost? I think not.
First of all, we know that this is a March 1st survey and seeing that we are already witnessing planting delays, and now lower prices, there is by no means anything to assure us we will plant that many acres. Second, we hear from many parts of the country that finances are in a state of flux and while a producer may have every intention of planting corn, his or her lenders could have another idea. Finally, all this really does is potentially provide a bit of a cushion but by no means assures good yields and I would argue that additional acreage could very well be marginal ground and will actually be a drag on average yields. Only look back to the 2013/14 crop year when we planted 95.4 million acres and the average yield turned out to be 158.1, over 10 bushels per acre below the current projected yield for this coming year. If you use a rough 13.55 billion bushel usage as the USDA had in the last S/D report it would mean that with the acreage number that was issued yesterday, we would need to see at least a national yield of around 157 bpa, reasonably close to the number from 2013/14.
Granted, the hill that the corn market needs to climb just became a bit steeper but I will maintain at this point, it is difficult to bury a market or harvest a crop for that matter when we realistically have not even put it in the ground as of yet.
I suspect that after the break in prices witnessed yesterday, by next Monday morning the market will be looking out and on to other things such as planting weather, and what is happening again with the macros. The key element there once again could be the US Dollar which could provide the needed counter balance to the acreage estimates.
Once again we have seen that index break down into lower lows for the calendar year and have inched closer to the 2015 lows. With indicators continuing to look negative, I believe there is still potential to extend lower and while that may not provide a direct boost for the corn market, it should help psychologically buoy all commodities, which certainly cannot hurt.