A better than expected grain report roiled ag markets expected the worse after a historic wet spring in the main U.S. growing region, writes Chad Burlet.
The June grain complex narrative did a complete reversal in the final three days of the month. For the first 27 days the agricultural markets were driven by two important known knowns: Planted corn acres were down significantly; and U.S.-China relations were bad and getting worse. The June 28 U.S. Department of Agriculture National Agricultural Statistics Services (NASS) Acreage Report dispelled the first and the Trump-Xi meeting in Osaka changed the second.
The NASS Acreage Report shocked everyone as their estimate of corn acres was two million above the highest analyst’s estimate and their soybean acres were one million below the lowest estimate. Within 40 minutes of the report’s release December corn futures had traded in a 42¢ range, 88% of their range for the entire month. The daily range last Friday would have been 2-4¢ wider, but daily price limits prevent a downside move greater than 25¢.
The NASS numbers look slightly more plausible when viewed as a composite where they have total acres for Principal Crops down 10.3 million from last year, 309.3 versus 319.6. It’s also worth noting that their total acres for corn and soybeans were down 5.7 million from their March report. What all of us missed was the significant switch from soybeans to corn. We attribute that shift to a soybean/corn ratio that traded below 2.0 and a farmer that turned bullish on corn when he saw tens of millions of acres unplanted and December futures trading above $4.50.
The most important thing for all of us to remember is that because of the record slow planting pace this is effectively an “intentions” report, not the “planting” report we’ve received in all previous years. NASS told us in the report that their acreage totals included 15.5 million corn acres and 33 million soybean acres that were not planted when the surveys were taken. The challenge now is to figure out how many of those 48 million acres eventually got planted.
NASS correctly saw that as an important enough question to schedule a resurvey of 14 states. Unfortunately, we won’t get those results until Aug. 12.
It’s reasonable to assume that several million of those corn acres did not get planted. The Weekly Progress Reports told us that 7.4 million corn acres were left to be planted on June 16 and 3.7 million still remained on June 23, an extremely late date for corn. On a state-by-state basis we take particular note of Illinois, Indiana and Ohio where crop trips and flights report millions of unplanted acres, but NASS only showed a combined reduction of 400,000 acres from their March intentions. We think a final corn planted acreage number of 88.6 million and a yield of 163 bushels per acre, 7% below trend, are more realistic. That would net a crop of 13.25 billion bushels versus a June USDA estimate of 13.68 billion.
Soybeans
On the soybean side we hear reports of farmers continuing to plant. We’ll get an updated report this afternoon, but a week ago there were still 12 million acres left to plant. With that much of the crop being planted in the last week of June or the first half of July it is not reasonable to expect trend yields. Soybeans also might lose a few more acres to Prevent Plant. That would leave us with 78.5 million harvested acres, a 49 bushel per acre yield and a 3.85 billion bushel crop. A crop that size would be 300 million bushels below USDA’s June crop number of 4.15 billion and almost 700 million bushels below last year’s record 4.54 billion crop.
An equally important variable for soybeans is demand, and that is once again a political question. Presidents Trump and Xi met in Osaka on Saturday amidst very modest expectations. To the surprise of many, the two Presidents emerged with generally positive statements and negotiations between the two countries have resumed. Unfortunately, we expect this round of talks to bring the same emotional and price roller coaster that the previous rounds have created. We already note that even the U.S. and China statements about the resumption of talks had significant differences.
It would appear that China has benefitted more from the break in talks than has the United States. The U.S. statement acknowledges that we may compromise on Huawei and that we will hold off on any new tariffs. There appears to be no offsetting concessions from China. This round of talks will also be more difficult because election politics are already ramping up. Leading Democrats are supporting a hard line with China on trade, which will make it more difficult for President Trump to compromise.
