One challenge of writing a grain marketing column is that you can be publicly wrong even before your writing hits the mailboxes. That was the fun we had last week.
Last week, I went on record saying that there were a lot of reasons farmers would never plant as many acres as the economists thought they would. I said that we always looked to the U.S. Department of Agriculture Planting Intentions Report for acreage information, but that the preview for those numbers came from the USDA Agricultural Outlook Forum.
Unexpected
So, while I was writing my opinion with “half my brain tied behind my back,” The Forum released the projection that farmers would ramp up planted corn acres to 94 million, and we would raise 181 bushels per acre and produce 15.585 billion bushels, a new record.
The immediate result over the next seven sessions was a drop in May futures corn prices of 61 1/4 cents and a drop of new crop December futures of 30 1/2 cents. In the process, we almost flipped May and December futures so that the December is now almost as high as the May. In the overnight going into March 4, we had May futures at $4.57 1/4 and December at $4.53 3/4.
This change in December futures is especially interesting, as the outlook is all about the new crop, but it is the nearby that got hammered. This confirms the thinking that big report moves, or fundamental moves, tend to be in the nearby contract, now May, as that is where the most trading interest is,
It is easy to find articles this week on why this is an overreaction. That might make me feel better, but the arguments are not necessarily conclusive. First is the fact that USDA has predicted a 180-bpa corn average yield for the last four years in a row. It has never happened. Now. the USDA is starting out assuming a 181-bpa yield.
Then we have the annoying fact that the prices of soybeans dropped, too. Given that the total acreages of corn plus soybeans plus cotton tends to remain the same, the normal assumption is that if corn acres go up strongly, the difference tends to come out of soybean acres. That should make soybean prices go up, but they didn’t.
In fact, the traders seem to be paying more attention to the 50% harvest progress in Brazil and improving weather in South America as an improvement to the size of South American crops. Or, the argument is that the shocking number to come out was the corn acreage, so we will trade that this week and maybe get more interested in soybean prices later. November soybean futures lost $1.11 in the last seven sessions, so I don’t really know which argument, or both, to believe.
Wheat
While most farmers were concentrating on corn and soybean prices, the wheat markets were also getting hammered. It is not clear to me if that is because wheat traded in sympathy to corn, or if traders just took money out of wheat specs to gamble on corn. If there were fundamental reasons for wheat price declines, it is hard to find them.
We are still noting that the Russians will likely continue to slow exports because of crop problems. In addition, some weather forecasters are talking up La Nina as moderating, leading to hot and dry conditions in our Southern Plains, which could limit hard winter wheat yields. Our Chicago “cookie” wheat lost almost 75 cents while this analysis was going on, and I remain ignorant as to just why.
There is talk of substituting wheat for corn in some feedlot rations, but that happens as one crop gains or looses on another, not as both corn and wheat get cheaper. July Chicago wheat futures are now trading at $5.61 1/2.
The sickening reality for producers who didn’t price a bunch of corn when near futures (then March) got above $5 is that the profit is now gone in corn again. Now, we are marketing with desperate hope instead of with a little profit and hope (then) of maybe more later.
Another reality is that, at these prices, maybe we get more soybean acres in our mix. In other words, our market reaction to new fundamental numbers could end up making those numbers wrong. I am not an expert on the corn/bean ratio, (or a lot of other things I pontificate upon) but I gave my opinions last week on why farmers more and more just like to plant soybeans.
We are still waiting for the Planting Intentions Report, and when it comes, we will still argue about the validity of the numbers until we get through planting season.
There remain many reasons for the real corn acres to be revealed later, but the 94 million-acre estimate that we now trade was a real kick in the head.
