Market analyst: Corn crop improvement bearish

Ray Grabanski
Special to the Farm Forum

08/13/19 — Markets are sure sagging greatly after our spring rally on the horrible planting conditions. That is interesting as yesterday USDA’s August report cut corn/bean planted acreage another 5 million acres (mostly beans) — and the corn market went limit down! But from the market’s perspective, the market rallied greatly during the difficult planting season, and when the weather cleared up — it started to drop. Realistically, the Pro Ag yield model for corn has risen 9 bu/acre since June 24, which would represent 700-750 mb increased production of corn. That alone is enough for the corn market to go down, and down it did go. Even though we are still wrangling over how many acres actually were prevented from planting (USDA-FSA said 19 million acres so far), the market seems done trading that old news. Instead, it’s trading new news (the improved crop conditions). And even in yesterday’s report, where USDA had 2 million more acres of corn than expected — it was the 3.5 bu/acre yield hike that hurt the market the most. What will likely be even bigger news will be our first frost date — when will it come, and how much crop will it damage? As late as millions of acres of corn/beans were planted, even a late frost will bring some yield loss.

USDA yesterday took the market by surprise with another huge shift in acreage from soybeans to corn (about 3 million acres), which in August is quite late to report on. The shift is disguised in a remake of prevent plant acres, but it is there for all to see. Essentially, USDA is saying that farmers corrected the market shortage of corn by simply stealing acreage from soybeans (where stocks were already plentiful). Then they also slashed demand for both corn and soybeans — mainly over the Chinese new preference to buy all their needs from South America and the FSU countries of Russia and Ukraine instead of the U.S. (Maybe we should be reviewing who we buy our department store goods from?)

So the corn planted acreage estimate was 90 million acres (2 million more than expected, but down 1.7 million from July). The soybean planted acreage estimate was 76.7 million (4.3 million less than expected, and 3.3 million less than July). So planted acreage of corn and soybeans were reduced 5 million acres from the July report, but still markets were sharply lower yesterday (corn limit down). Why was that negative? The problem was that expectations were much worse on planted acreage — we already priced in a poor 2019 crop. But the crop has improved the past few months, as reflected in USDA’s 3.5 bu/acre hike in corn yields from July to 169.5 bu/acre. Also, demand was reduced (mostly for China), and both corn and soybean exports were reduced 100 mb each along with ethanol use. So demand is poor, and the crop is still improving. With a warm fall now in the forecast, we might even be allowed to mature a lot more of the late planted crop than expected as well.

Weather forecasts have continued to get wetter and warmer, and now today we have a forecast of normal/above normal precip and warm temps for the entire 14-day forecast. That’s a huge improvement from cold and dry forecast last week (which could stress crops). But now the central Corn Belt is forecast to have above normal precip, with the rest of the Corn Belt near normal. Temps will be normal/above normal in the next 7 days, and warm further to above normal in the 8-14 day forecast. Perfect weather to finish a late crop year. Temps cooled just enough in late July and August to prevent stress during pollination, and now are warming as we near normal frost periods. It could hardly have been ordered any better for the Corn Belt!

Ironically, FSA released numbers yesterday as well showing a total of 19 million prevented planting acres, including 11.2 million of corn, 4.35 soybeans, and 2.2 million wheat. Including failed acres or prevented planting, there were 85.8 million acres of corn reported, 74 million of soybeans, and 46.3 million of wheat. These numbers will need to be digested a bit more to reconcile with USDA’s August report, but it appears they still have too little prevented planting corn in their numbers.

Crop progress was out yesterday, showing corn and soybean conditions the same as last week (57% corn G/E and 54% soybeans). The Pro Ag corn yield model rose 0.5 bu/acre to 172 bu/acre, and soybeans were down 0.13 bu/acre to 47.66 bu. Note that is above USDA’s 169.5 bu corn yield, and below the 48.5 bu/acre soybean yield. Soybeans may actually have a more bullish case than corn right now. Corn is only 7% dented (9% behind normal), and silking 90% (9% behind), and dough 39% (22% behind). Soybeans are 82% blooming (11% behind normal) and 54% setting pods (22% behind normal).

Other crops show sorghum 61% headed (13% behind) and 26% coloring (9% behind), with conditions down 2% to 66% rated G/E. Winter wheat is 89% harvested (7% behind), with HRS wheat 8% harvested (22% behind). HRS conditions are 69% G/E (down 4%) vs. 75% last year at this time. Barley is 15% harvested (24% behind), with conditions losing 2% this week to 74% G/E (down from 81% last year). Soil moisture levels stabilized at 63% adequate/surplus, while subsoil slowed its decline to only 2% this week (now 69% adequate/surplus).