06/11/19 —Weather markets are always fun, and full of twists and turns that are difficult to predict. Today is not much different, with a huge rally early based on expectations of large prevent plant acres in the corn and soybean belt. That has turned out to be as expected, with the June 9 planted acreage at only 83% corn and 60% soybeans. Since all the final planting dates for crop insurance have come and gone for corn (May 20 to June 5), not much more corn will probably get planted. Soybeans can be planted later, but already the first final planting date for northern states has come and gone (June 10). But now the market is going down, the old “buy the rumor, sell the fact” mentality of the market. Tomorrow we get a USDA report, and while they will likely low the yield of corn (and maybe beans) some, they won’t change acreage until after June 30. So the report won’t be friendly given the problems planting we had this spring. Perhaps that will be a buy?
Weather is still critical for soybean planting, and forecasts are moving to a wetter and colder forecast again, with above normal precip forecast for all of the Corn Belt now for the next 2 weeks, and temps below normal. That will make it difficult to plant much more corn or soybeans, and why would anyone want to plant in adverse conditions later than the final planting date? You will get a poor crop, get reduced insurance coverage (-1%/day planted late), and a poor yield will reduce your APH the next 10-20 years. It makes little financial sense to do so, other than the fact that we like to plant if we are farming.
When you look at the planting progress numbers, we have only 83% of the corn planted nationally on June 9 — a pathetically slow number (16% behind normal). With the final planting date long gone, there is little incentive now to plant (other than those who are willing to chop for silage and need feed supplies for livestock). For example, South Dakota is only 64% planted and their final planting date is long gone (May 25 for most of the state except the southeast); essentially 1/3 of their corn acreage should not get planted! Wisconsin is similar at only 78% planted (20% to not get planted?), Michigan at 63% planted (1/3 will be prevented planting?), and Ohio at only 50% planted (1/3 will be prevented planting?). Final planting dates for most of these states was May 31 or earlier, so most will not plant now (maybe a little in Ohio as June 5 is the final date for Michigan, Ohio, Indiana, and Illinois).
With 17% of the corn crop left to be planted, it’s likely that about 9 million acres or 10% will not get planted and farmers will take the better deal of prevent plant. That reduces the carryout about 1.53 billion bushels (170 bu x 9 million), and the corn that is planted is already about 10 bu/acre below USDA’s current yield estimate of 176 bu/acre. With the first corn crop rating only 59% rated G/E, the Pro Ag yield model is only 166 bu/acre, a full 10 bu/acre below USDA and 8 bu/acre below our ‘trend’ yield estimate. Another 10 bu/acre reduction on 80 million acres is 800 mb lost corn, reducing the carryout a total of 2.33 billion bu. Since the projected carryout is 2.2 billion, obviously price has to allocate the short supply through the year, and the faster it gets that done, the less job left later. So prices of corn are likely to go higher yet this summer.
The corn story has been told many times in the past 4 weeks as prices rallied $1, but the soybean story has not been told yet. Soybean prices are still pathetic even after rallying $1. Now that they’ve dropped back 40c, there is almost no premium in soybeans as the world thinks the U.S. still has a mountain of soybeans if they don’t have China as a customer — even though 40% of U.S. soybeans aren’t planted! But soybeans might have a story here, too. Planting is only 60% complete, and the final planting date for most northern states just ended June 10 (yesterday).
South Dakota, for example, is only 43% planted soybeans, a full 50% behind normal. With muddy conditions this week, there is little incentive to plant soybeans — so South Dakota might lose 40-50% of their soybeans to prevented planting. Wisconsin (30% unplanted), Ohio (68%), Missouri (64%), Minnesota (21%), Michigan (55%), Kansas (52%), Iowa (30%), Indiana (58%), and Illinois (51% unplanted) all have major incentive to not plant late and ruin their APH the next 10 years and take reduced coverage planted late. Northern states all have a June 10 final planting date, with southern states a bit later (June 15 in Iowa and states east of there, June 20 in Indiana, Ohio, southern Illinois). With a cold/wet forecast the next 2 weeks, little might get done. So we could have 7-9 million acres of prevented planting soybeans as well as a yield reduction due to late planting. 8 million acres of soybean prevented planting is a loss of 400 mb production. A 3 bu yield loss would be an additional 250 mb production loss, and all of a sudden China’s cheap soybeans aren’t so cheap anymore. Funny thing is, when a shortage develops, the buyers line up to buy it.
What if China decides they need to make a trade deal so they can buy cheap U.S. soybeans? Now we’ve got a soybean shortage in 2019, too.
We think the market can go to new highs with the right weather the next 2 weeks and further trade deals which bring more demand. If we can rally further and break above $4.50 corn, a target above $5 is the next potential sale. That will drag soybeans and wheat higher, too, but soybeans might have their own upside momentum if we have 7+ million acres of prevented planting soybeans in 2019 (which is becoming more likely).