Will We Really See 93.6 Million Corn Acres?
Mar 31, 2016
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On Thursday the USDA released the Prospective Plantings and Quarterly Grain Stocks reports. Most of the numbers were in line with Analyst's projections with one huge exception. Corn acres were well above expectations and represents a 5.6 million acre increase year over year. This was well above even the highest estimate. This was a shock to me as well as I was expecting the QGS report to be the bigger deal. If this holds true there will be a substantial cushion for any weather issues this year. However, there may be some reasons to think that corn acreage will come down when planting is completed.
At 93.6 million acres the USDA survey bases Prospective Plantings report is projecting the largest planted acreage for corn since 2013. This represents an increase of 5.6 million acres from last year and was 2-3 million acres above even the highest expectations. If this acreage projection holds true a "normal" growing season could result in record large ending stocks for corn. This is about as negative for the corn market as any news could be. Corn prices responded by falling sharply and making new lows for the year. However, there might be reason to believe that this was the highest planted acreage estimate that we will see for this growing season.
Corn planting in the delta has come to a halt with round after round of heavy rains stopping planting progress and drowning out many fields. This is important this year because the intentions are for sharply higher corn acres in the delta. Louisiana is looking for a 183% increase in corn acres year over year with Arkansas expecting a 172% increase and Mississippi expecting a 157% increase. All together those three states were expecting to plant 2.3 million acres of corn this year. However, weather is making this a big question at this point and if dryer weather does not come soon a significant amount of acreage may have to be switched to other crops.
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Grain prices may also be a determining factor as we get ready to get into the fields in the heart of the corn belt. Since the first week of March soybean prices are up almost 65 cents, wheat prices are up 30 cents and corn prices are down 4. This represents an almost 70 cent improvement of soybeans compared to corn and 35 cent improvement in wheat over corn. The increase in the price relationship for wheat or (especially) soybeans compared to corn may have some producers thinking about some last minute changes. The Prospective Plantings report itself may give producers reason to re-evaluate given the outlook for corn prices if weather is "normal".
Finally weather may be the biggest determining factor for the final acreage mix. Aside from the issues that are ongoing in the delta much of the rest of the corn belt has turned to a cooler and wetter pattern. If this cooler and wetter pattern persists planting delays could mount and we may miss the window of opportunity to plant some corn acres that may get switched to other crops. There is still a lot of time, but weather will have to be watched in the next few weeks.
At the end of the day the USDA Prospective Planting report was a bearish shock to the corn market. If we do plant 93.6 million acres of corn there is a firly comfortable cushion for weather issues this year. That does not mean that yield is no longer important, it is, but it will take a bigger weather issue to shrink the crop to a point where it matters to price. This is certainly not impossible however and for what it is worth the longer term forecasts are still concerning.
If, for example, we were to replicate what we did back in 2013 with a 158.1 national average yield ending stocks could be down year over year depending on demand. It would certainly not be out of the question to have yields come in 5-8% below trend. But, for now we have to run balance sheets expecting at or near trend line yields and without a big increase in demand a 93.6 planted acreage corn crop paints a bearish picture if acreage and yields hold up.
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Give us a call if you would like more info on the strategies we are using or if you would like to set up an account to put a plan in action. Ted Seifried - (312) 277-0113. Also, feel free to give me a call or shoot me an email if you would like to talk about your marketing plan, the markets, weather, or just to visit. Follow me on twitter @thetedspread if you like.
May Corn Daily chart:
May Soybeans Daily chart:
May Wheat Daily chart:
Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or firstname.lastname@example.org
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