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What Happened?

Published on Monday, July 1, 2019

While market bears are enjoying the last two days of corn trade, even many of them were not expecting the numbers issued by USDA on Friday.  Prices fell precipitously as Acreage estimates for corn and soybeans were adjusted outside of private expectations.  A quick snapshot of these expectations and results are shown below.

Acreage Report
     Corn: 91.7 million acres vs. 86.66 estimated, 89.8 in June and 92.8 in March
     Beans: 80.0 million acres vs. 84.355 estimated, 84.6 in June and 84.6 in March
     Wheat: 45.6 million acres vs. 45.65 estimated, 45.75 in June and 45.8 in March

While the National Agricultural Statistics Service (NASS) did later announce that they would re-survey acres and release an updated report in August, one must ask how on earth this all happened.  After all, the same agency (NASS) that produced the Acreage report also releases the weekly crop conditions report, which keeps track of acreage that is planted from week to week.

The survey period for the Acreage report takes place in the first two weeks of June.  NASS selects a sample of 9000 geographic segments from which to survey which includes roughly 68,000 farms.  As of June 17th, NASS reported that 92% of corn was planted.  That same day, 77% of soybeans were planted.  Planting Progress numbers illustrated above. Two things are worth noting:

Most corn being planted at that time is largely not intended for the harvest of grain, but rather corn silage.

Soybean plantings are normally only 93% planted vs. corn at 100% because there is still a vast amount of soybean acreage that will be planted after wheat harvest.

Regardless of your bias, these reports would lead one to believe that many acres would not be planted...and if they were (at least for corn), not all were intended to be harvested as grain.  This raises two very important questions.

What actually was planted?  Simple math of the Planting Progress (% as of June 16) relative to the Planting Intentions (as of March 29th) would suggest that 85.4 million corn acres would have been planted (regardless of the conditions or the seed's success).  Additionally, 65 million acres of soybeans were planted.  The weekly reports do not have any means to measure producers who went back to the field in late May to plant additional acres to corn that were not initially intended for corn.  However, this does little to explain the progress in the Eastern corn belt where the four states of Illinois, Indiana, Michigan, and Ohio were only down 190,000 acres from the previous year and yet were only 81% planted on June 16th.  On progress alone, those four states should have seen a reduction of 3.72 million acres from the planting intentions report and a decline of 2.46 million from a year ago. 

What will be used for grain? This is an even bigger question, that will likely not be answered until harvest.  However, given the lateness of much of the plant dates, NASS should have accounted for a larger than normal abandonment rate.  At roughly 9% of a given planted acreage number, abandonment largely accounts for corn planted for silage or otherwise lost to other conditions.  To say that this rate will be consistent in 2019 to that of a normal year is a big stretch.  This should be met with some form of compromise in the August revision as well.

All of this to say, we will continue with the USDA numbers as reported on Friday until some revision is made on August 12th.  Until then, yield will become the subject of focus.  Next Thursday, August 11th, the USDA will put forward the monthly WASDE report which will take another look at the balance sheet as it pertains to supply and demand.  Of interest will be the yield number they choose to use in conjunction with this larger corn and small soybean acreage.  Given conditions, most expect another reduction...the same direction they took in the June report.

In the meantime, continue to operate from a plan that rewards rallies and defends risk from even the most remote and unexpected places.  Give us a call to sort through strategies that best fit your operation.