Traders are still licking their wounds and jawboning the June 28 U.S. Department of Agriculture market report.
To say the numbers from the National Agricultural Statistics Service are incredible is an understatement. To say they are being met with disbelief is universal.
The market will be shaken for much of the summer. There are two very real issues facing farmers and traders this year, and the reports confused the issue, rather than shedding light on them.
Big problems
First, we have planted acres. Then, we have crop conditions, which are historically low because of poor planting conditions and late planting.
On March 31, we got the Prospective Planting Report, which said farmers would plant 92.8 million acres. It is widely believed that this incredibly wet spring meant our corn acres were reduced by as much as 5 to 7 million acres, a very ugly disaster.
The NASS told us on the end of the month that farmers actually got 91.7 million acres planted. This staggered the markets, as traders were caught flat-footed. Since then we have been trying to make sense of the numbers.
To make excuses for NASS, farmers were surveyed June 1. At that time, farmers were still trying to plant corn, and told surveyors they would get the corn in.
Then, the report did not allow for prevented planting acres. They will not actually be reported until September. Until then, acres reported by the government will include prevented planting as if it were planted.
Defying belief
The government could have delayed this report, or offered admissions that numbers could be gravely in error. Instead, it was offered with the full faith of the government. Some are referring to it as “fake news.”
For example, try believing that we only cut 1.1 million acres of corn planting, when Illinois alone is believed to have 1 million acres not planted.
Then, there is the matter of yield. The USDA did reduce the yield by 10 bushels, to 166 bushel per acre. The trouble is, when the late planting is analyzed, our Russell expert thinks a conservative number might be 143 bushels per acre, which would reduce the crop by 1 billion bushels from the current USDA estimate. This would be more than a little bullish.
So, the challenge to the markets is to figure what numbers we are actually trading, to get an idea of what future prices could be. We are forced to trade the USDA numbers for now.
As time goes on, a legion of private forecasters will offer up crop estimates, and gradually they will become more influential than the USDA numbers.
A hill of beans
That brings us to soybeans, where the government in its infinite wisdom believes that soybean acres will be down to 80 million, instead of the intended 84.4 million.
This reduction comes from the idea that beans did not get planted in the wet weather, and denies the normal idea that late corn acres get switched to beans.
It is true that many people thought farmers would take prevented planting on corn acres, instead of planting late beans. It is also true that some farmers who could not stand bare patches any more than a beaver can stand the sound of running water, went ahead and planted until the beginning of July.
But, the general understanding is that soybean acres would not be reduced much. There would be some switching to beans.
The big issue with beans, to me, is reduced yields from late and poor planting. So, if the USDA is correct about reduced bean acres, the market should have reacted with bullish price moves.
Instead, we lost 28 cents in November soybean futures the week of July 1. Early on July 9, December corn futures were trading just under $4.37, down 7 cents.
I am struggling to explain that drop — other than the fact that corn condition ratings, at 47% good and just 9% excellent for the country, may be better than actually expected. Note that Ohio, the worst state, is at only 31%, plus 3%.
We had a recent low of $4.20 1/2 on July 2, after the bogus report, and a high of $4.73 back in the middle of June. November soybean futures traded at $8.92, down almost 6 cents, early on July 9.
History
The high in the middle of June was at $9.48, and the low is being made now, at $8.91 3/4.
It should be noted that in our last disastrously wet year, 1993, the rally died in the middle of June. In August, we started creeping higher, with realizations of a reduced crop beyond expectations.
When the combines got going strong in the middle of September, we gapped higher. The high actually came with the January inventory report.
