This chance doesn’t come very often. Normally major reports come out from USDA just after my column is written, so I get to write about my expectations, then write the next week about reality. In this case, the March 31 USDA Stocks and Acreage Report came out on Monday, so I get to react in a timely fashion to it.
This is the report we have been waiting for, what we call the Planting Intentions Report. This has a tendency to define the market for a couple of months if there are any surprises in it.
Less corn, more beans
USDA Monday reported American farmers will plant in 2014 fewer acres of corn than the trade had anticipated, and about what we expected for beans.
The big change is in corn acres, where it is now projected that we will plant 91.7 million acres. The average trade guess was 92.75 million acres, although our own Country Hedging, that I use for hedging, had been guessing even less than what is in the report.
In 2013 we planted 95.4 million, so we are taking a large cut.
USDA reports soybean acres to be coming in at 81.5 million acres. This is slightly above the average guess of 81.1 million acres, but well above the 76.5 of the previous year.
The total of corn and bean acres is less than last year, and the difference is expected to go to cotton.
Market reaction
Traders had been nervous before the report. We had good gains in corn prices last week, but we lost all the gains in trading before the report Monday. The March corn futures low was down almost 16 cents from the Friday close.
When the report came out at noon our time, prices turned around. We went from the low of 4.76 1/4 to a high over 5.00. We gained 7 1/2 cents for the day.
Even though the report showed a little more soybeans to be planted, the bean prices also turned around. March futures had been as low as 14.23, but reversed to have a close at 14.64, a gain of 27 1/2 cents.
This Tuesday has seen early follow-through to the gains. March corn is up to 5.06, a gain of an additional 4 cents. November bean futures are up 7 1/2 after a loss of 3 cents yesterday. So, the old crop beans were up 27 1/2, but the new crop were down.
The two crops have divergent supply and demand expectations. The old crop prices have been strong because we are tight in supply and have some fear of running out this summer before harvest. And, the new crop acres are more than last year, and the market at this point always assumes good yields.
Meanwhile, the old crop corn supply and the new crop are working together, not diverging like the soybeans. The corn stocks were reported by USDA Monday to be 7 billion bushels on hand right now. This is actually 100 million less than the market thought, so that is slightly bullish for prices.
The corn planting is expected to drop, so that is bullish to the new crop, also.
Before the report, I told someone in the industry that, if the Country Hedging corn numbers were correct, I expected higher corn prices. The report was not as low as their number, but it was still in the right direction.
One-day wonder
I also said that, no matter what the report said, this would be a one-day wonder. This opinion comes from 40 years of watching fundamental reports and the reaction to them.
Unless there are amazing discrepancies from the expectations, the market spends one day reacting, then we go back to business.
In this case, we had a reversal of prices yesterday, which is a strong reaction. We are getting some follow-through in early Tuesday trading. These are sales opportunities.
If history holds up, by the end of the day we may very well be lower than we are now. That is just how these things work.
Reports do not normally change trends, they just reinforce the trading that has been going on.
