Market analyst: Markets turn negative for now

Ray Grabanski
Special to the Farm Forum

07/02/19 — Grain markets have taken a decidedly negative turn since the “Planted” acreage report Friday. However, “planted” is a key word here and perhaps a little deceiving in that typically the June 30 acreage report is a planted acreage report, but not this year. While most year’s everything is planted by the June 1 survey date, this year only 2/3 of the corn and 1/3 of the soybeans were actually planted. It should have been renamed a “#2 Intended acreage report”, as the first one was in March and didn’t change at all except for North Dakota and South Dakota, who did report their prevent plant acres. But the rest of the Corn Belt told the surveyors they would plant the same amount as March. But we know farmers didn’t get it done, but we’ll have to wait until October to know how much was not planted.

Crop progress was out yesterday, with it still showing planting progress in some crops like soybeans where 7% more was planted from June 23-30, with 8% still left to be planted in July. Really, 8% to be planted in July? To give you even less confidence in these numbers, it shows that South Dakota “planted” 13% of its soybeans from June 23-30, and now only has 3% of its soybeans left to plant. Who in South Dakota thinks they can plant in July and harvest soybeans? There probably isn’t a single farmer! How about June 23-30? I’m quite sure that 13% of soybean acreage was not planted in South Dakota June 23-30. In fact, I don’t think 1% of the farmers even think that is worthwhile, even without crop insurance (which 99% of South Dakota farmers have). So these numbers are clearly flawed, and have been since about June 1 in corn, and June 10 in soybeans as those who abandon acres due to PP are upping their percentages “planted” when in fact it’s prevent planted. But the market treats these numbers as gospel, and thus our recent downtrend since the Friday acreage “Planted.

Soybean planting supposedly is 92% complete, and soybeans are 83% emerged of what was planted (so 17% will emerge in July?). Corn emergence is also telling, as 94% was emerged in June. If I told you in March that 6% of corn did not emerge in June, and 17% of soybeans what would you have said about the yield potential of those crops? I submit that the yield potential of 6% of the planted corn and 17% of the planted soybeans is maybe 50% of normal — or zero percent of normal — depending on the final frost date and summer heat. So it won’t amount to much the crop that emerges in July, let alone the crop that wasn’t even planted (possible 5-8% of all intended soybeans and corn?). So this crop is in big trouble — especially that not emerged by July 1.

But the market considers this old news, and is looking for new news to trade. Corn conditions were 56% G/E, the same as last week while soybeans were 54% G/E, also the same as last week. These are the worst corn conditions in years, and the worst soybean and corn conditions since 2012. The only other years as bad were 2002, 1992, 1993, and 1988.

So of the 5, only 1 turned out decent (2002) and the others were disasters (1988/2012 droughts and 1992/1993 floods). Pro Ag yield models did go up slightly with steady conditions, corn up 2.27 bu/acre to 166 bu and soybeans up 0.38 bu/acre to 47.1 bu. These are both still below USDA’s June numbers (soybeans by a lot) but with the soggy soils, the heat is helping things to look better.

The report Friday which is usually a planted acreage report was changed dramatically by default due to this year’s unprecedented late planting. Corn acreage was 91.7 million acres “intended” (+4.67 million from trader’s guesses), up 3% from last year while soybeans were 80 million “intended” acres (down 4.59 million from traders expectations), down 10% from last year. Wheat was 45.6 million acres (close to trader’s 45.67 million expected), and down 5% from last year. Cotton was 13.7 million, down 3% from last year.

But this is the largest acreage estimate for corn and soybeans we will see all year. By October, the numbers will go down for both corn and soybeans due to the late planting/prevent planting that occurred after June 1 (the survey date).

By the problem states, Missouri corn was only 69% planted, Illinois 45%, Indiana 31%, Ohio 33%, and Michigan 42% and they indicated no change in acreage from March. For soys, only 39% of the nation’s soys were planted June 2 and the problem states were Missouri 18% planted, Illinois 21%, Indiana 17%, Ohio 18%, and Michigan 32%.

If you examine the report closely, you realize the only “lost” acreage in any states were in North Dakota and South Dakota, both which lost virtually all the acreage reduced in the entire U.S. They weren’t the wettest states, but they were wet until June 1, the date of this report. And North Dakota/South Dakota final planting dates end earlier than most states so they already started abandoning acreage on June 1. But no other state did — yet. The wettest states after June 1 were Missouri, Illinois, Indiana, Ohio, and Michigan so all the lost acres there will occur after June 1, and therefore were not detected in this report. Instead, it will come in October when FSA data will be completed enough to get the real numbers.

In some very bullish news (but the market didn’t treat it bullish), the G20 meeting between Presidents Donald Trump and Xi Jinping where the U.S. agreed not to add 25% tariffs to $300 billion in Chinese imports in return for “large” purchases of U.S. ag product. The tweet June 29 was: “I had a great meeting with President Xi of China yesterday, far better than expected. I agreed not to increase the already existing Tariffs that we charge China while we continue to negotiate. China has agreed that, during the negotiation, they will begin purchasing large....amounts of agricultural product from our great Farmers. At the request of our High Tech companies, and President Xi, I agreed to allow Chinese company Huawei to buy product from them which will not impact our National Security. Importantly, we have opened up negotiations.”

The grain markets hardly reacted to the news, but the stock markets of both countries reacted strongly with a new S&P high (up 35.0), and China’s stocks up 2.2%.