Market analysis: USDA report doesn't impress

Ray Grabanski
Special to the Farm Forum

05/12/20 — On May 12, USDA released their first 2020/21 numbers, with very few surprises included. They used the March acreage intentions of 97 million acres of corn and 83.5 million acres of soybeans. At trend yields of 178.5 bu corn and 49.8 bu/acre soybeans, that gives us a 16 billion bu corn crop and 4.125 billion soybeans. Those are big corn supplies, and even with expanded demand we have 3.318 billion bushels left after the year. Soybeans are friendlier, with stronger demand leaving us with 405 mb carryout vs. 580 mb last year.

But these numbers will be adjusted as growers are switching acres away from corn and towards soybeans/wheat due to the price loss since March for corn. Corn prices dropped more than either wheat or soybeans since the COVID-19 virus crises and dropping energy prices, and it’s likely at least some acres will be shifted due to the unattractiveness of corn prices.

The market hardly reacted to the numbers with new selling in spite of corn’s intimidatingly large ending stocks numbers. Perhaps all the sellers are already short corn? In fact, corn prices actually rallied Tuesday to 5c gains after starting lower, so apparently the report didn’t seem bearish corn to traders as we are already near 10-year lows.

Weather forecasts continue to call for another week of very cold weather in the Midwest, with about normal precip favoring the central/eastern part of the country. Today there is rain in Kansas, Oklahoma, Texas, and Arkansas and snow in Montana and South Dakota. Day 8-14 forecasts call for much warmer temps and still wet areas in the central U.S., but some dry areas will also emerge. Overall, this is not a bad forecast for the growing crops, but it isn’t ideal either as warm/wet weather after planting is done is generally the best forecast to get the crop advanced in progress early so it can harness the sun on the longest days of the year. But with current freezing temps in much of the northern U.S., it’s unlikely much germination or growth is occurring.

Planting progress is moving along, albeit much slower than the first 2 weeks of the planting season (the previous 2 weeks). Corn is 67% planted, 11% ahead of normal while emergence is 24%, only 2% ahead of normal. Soybean planting is 38% complete, 15% ahead of normal while cotton planting is 32%, 5% ahead of normal. Sorghum is 28% planted (2% behind normal), sugarbeets 60% planted (22% behind), HRS wheat 42% planted (21% behind), and barley 60% planted (8% behind normal). Northern tier states are struggling the most due to the cold temps.

The winter wheat crop conditions declined 2% yesterday to 53% G/E, with the Pro Ag yield model declining another 0.17 bu/acre to 51.2 bu. So the crop continues to decline as we enter more crucial weeks for the growing crop. If that continues, at some point it will become friendly wheat prices.

While agricultural fundamentals are important to final price determination, perhaps in 2020 they are less important than almost any other year in the last few decades. That’s because the U.S. economy is in shambles at 15% unemployment, and an expectation it will go higher still in coming months. While many media outlets seem to expect that to worsen markets, markets don’t seem to be expressing the same sentiment. In fact, stock markets have rallied quite a bit from lows in March, up from the 18,000 low in the Dow to 24,000 today, and momentum still up. With corn rallying on news of well over 3 billion bushel carryout, we are starting to wonder if even the most bearish U.S. grain — corn — is acting the same way.

Perhaps we have only one way to go — up? The old saying is, “It’s always darkest at the dawn.” Hopefully that is true, not only for the U.S. economy and stock market — but agriculture as well.