USDA’s June Acreage report showed a surprising drop in soybean acres and showed the number of acres planted in corn is still below 90 million. Despite what was viewed as a bullish report, the grain markets were in major sell-off mode Thursday and Friday.
The main changes in USDA’s report Thursday showed: 2022 acreage numbers:
- Corn acres are estimated at 89.9 million, up from the March estimate of 89.490 million
- Soybean acres are estimated at 88.3 million, down from March’s estimate of 90.955 million
- Wheat planted area for 2022 is estimated at 47.1 million acres, which is the fifth lowest all-wheat planted area since records began in 1919.
- Cotton acres are estimated at 12.5 million, up 11% from last year.
“The industry was kind of assuming that USDA was on the bottom end of the survey or range on corn and on the upper end on soybeans, and USDA confirmed that, but soybeans came down even more than expected. That takes off about 150 million bushels worth of production potential going forward. And so therefore, it really tightens up the new crop balance sheet a lot more,” says Arlan Suderman of StoneX Group.
USDA also released an updated look at grain stocks, which were in line with trade expectations. Suderman called it “the most neutral grain stocks report he’s ever seen in four decades,” and says now the focus is on weather and economy.
“Well, I think as we watch the weather markets very carefully, it’s key but I would also offer that if you look at new crop balance sheets, whether they’re soybeans, wheat or even new crop corn, they continue to tighten, so I don’t see an end to the multi-year bull market that we’ve been in,” says Dan Basse of AgResource Company.
Basse believes harvest lows this year will be above last year’s levels. The AgResource Company modeling points to possible $5.80 to $6 range in corn, and $13.50 or $14 in November soybeans. He believes the wheat market could be in the process of starting to form some seasonal lows based on the world wheat market.
“As I stand back from it, I think weather is very important,” says Basse. “A bushel of yield means a lot to Chicago markets every day. We’re going to see a lot of volatility, farmers probably need to be a little patient here, but t I do think we will see higher prices longer-term.”
The biggest headwind near-term for grains and livestock could be the economy. On Friday, wheat prices were at levels not seen since before Russia invaded Ukraine. Suderman says charts are breaking down as Wall Street worries about global recession risks weight on the market. He says corn and soybeans are rapidly getting to the same point. Suderman thinks those concerns are also a hurdle for livestock markets.
“Our biggest threat ahead of us is what’s happening in the economy and the fact that the consumer may do. According to M2 money supply and currency in circulation, the money is still the stimulus is still in the system. But the consumer doesn’t want to spend it. And in fact, we saw that in the data that came out earlier on Thursday morning, where inflation is kind of flattening out, but it’s still at high levels and consumers are pulling back on spending,” says Suderman.
As the Federal Reserve raises rates, Basse agrees a possible recession is a concern, but points out demand will be the determining factor.
“I think you do have to see the economy, but we’re not in a recession today,” says Basse. “So, it’s hard for me to cut demand until I really started to see recession, but the markets are anticipatory. So, they are worried about the future. And they need to see demand if it stayed the same or increase if indeed there’s confidence coming forward.”
