For the last few weeks, I have been explaining the huge potential impact that U.S. Department of Agriculture’s March 31 Prospective Plantings Report can have on the market. I cited the USDA number for corn at 94 million acres from the Outlook Forum in February, and then I gave reasons why the number could be much smaller than that.
Surprise
In the middle of the day March 31, we got the report and we did get a surprise. It was not the one I predicted, but a number much higher than the high 94’s the trade guessed.
USDA says that the nation’s farmers will plant — get ready for this — 95.3 million acres. This would be the highest in 12 years, since the big increase for the ethanol buildup. So, you would think the market reaction would go to the cheap side. Nope! At the end of the day, corn prices were 4 cents higher on the May futures contract!
The next surprise came when the soybean planting was reported with an expectation of 83.5 million acres, lower than expected. The wheat acres were expected to be 45.9 million acres of all classes, which is the second lowest wheat plantings since the report started in 1919!
At first glance, the corn gain was a surprise given that the corn planting acres came in a million too high for expectations. The May soybean contract lost 8 1/4 cents after soybean acres came in smaller than expected. Only the wheat initially made sense, as smaller acres there did give us an 8 1/4 cent bounce, to $10.31 1/2.
As the numbers were analyzed during the day, it was concluded that the market was really not all that surprised by the extremely high corn acres, and the market was really expecting a smaller soybean acreage number. Those things may be true, or they may be rationalizations after the fact.
One interesting article I read suggested that there is an 80% correlation between a higher price the day after the planting report and a higher market in the summer. The same article suggests there is little correlation between the soybean price the day after the report and the price in the summer.
So, if you believe that, look at the April 1 price for May corn futures as a harbinger for the summer. (I love that word, but I never hear it used in conversation. Is it a hard g or a soft g?)
Grain stocks
There are actually two big reports released the last day of the month, and the other one is the USDA Grain Stocks Report. This tells us how much grain is on hand in the country, and whether it is in farmer hands or commercial hands. This report comes every three months and is watched carefully as it measures if our usage of grain is what we expected according to our exports and our estimates of industrial and agricultural consumption.
The corn stocks on hand March 1 came in as expected, at 8.15 billion bushels. This is what we have left until the end of the marketing year, Aug. 31. However, the grain is not in the expected hands. The on-farm supply of corn is at 4.5 billion bushels, 11% less than we had at this time last year. The off-farm corn is at 3.65 billion bushels, 12% more than last year.
This means that the trend shows that the farmers have sold more of the crop by now than they did last year. We watch that because farmers may hold back grain in a cheap year, unwilling to dump it at low prices. This year, we have not had high prices, but we have had no consistent clues that prices would get better. A friend told me just today that he sold a few load of corn a month ago when he could get over $5 for it. That has to feel good now that corn has dropped 70 cents.
One risk that farmers take in cheap years is to delay selling at poor prices and then getting into the summer and being forced to sell. In the industry, we always talked about this situation giving the power to the elevators and commercials. They are not forced to bid the price up because they know the corn has to come to town to make space on the farm for the new crop.
Soybean stocks were reported at 1.91 billion bushels — just what the traders expected. It still feels to me like we could run out of soybeans, but the reality is that the Brazilian crop is nearing the end of harvest, and the world markets will switch origins to South America for a few months. The Brazilians have had some tough, dry weather the last few months, but the crop improved over the doom and gloom reports. Yes, it is smaller than expected, but it is still a record and then some.
The wheat markets showed us a good bounce March 31 after eight of the last nine days being lower. May Chicago cookie wheat futures were trading at $5.31, down a penny the evening of March 31, after gaining 8 3/4 cents March 31. Part of that gain probably came from the low wheat acres and a little from news that another wheat exporter is having the crop reduced by drought. India has had crop problems the last four years, and this year is another. They had to stop exporting in 2022, and they may have to this year.
I lived in India during the so-called “Green Revolution” of the early 1970s. At that time, it was common for India to beg and borrow to get wheat to alleviate starvation. Then, American agronomist Norman Borlaug used Rockefeller Foundation money and developed a hybrid wheat in Mexico that was perfect for India. India bought wheat with rupees that were not allowed to leave the country.
USDA used those rupees to develop universities that were in principal like our “land grant” universities, complete with extension services and what they called a “Package Practice” guide. In the space of a few years, the area I lived in went from a district average of 35 bpa to 135 bpa. India began to export wheat and has most years since.
