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June’s USDA grain stocks and acreage report released

‘It is hard to absorb the stun of a 91.7 million acre estimate’

July 8, 2019
By KRISS NELSON - Farm News editor (editor@farm-news.com) , Farm News

By KRISS NELSON

editor@farm-news.com

Groans could be heard around the Midwest from growers Friday after the U.S. Department of Agriculture released its grain stocks and acreage report.

Article Photos

Unplanted acres such as this field didn’t seem to make their way into the latest USDA grain stocks and acreage report as they have made the
estimate that over 91.7 million acres of corn has been planted in 2019 which many agree is a very bearish number.

"I think we cold probably use today's estimate from USDA as probably a worse case scenario for the year, given we haven't even gotten into looking at yields yet and that will have to come later this year," said Todd Hultman, DTN grain market analyst. "This has to be the most bearish assumptions you can make for planting estimates right now."

The June report is one of the biggest reports of the year as it often sets the tone for the rest of the growing season and new crop year.

"Planting estimates are a big factor of the supply estimates that we make each year and there is just no getting around it," he said. "This is a very big report."

The report comes from surveys the USDA conducted during the first two weeks of June, which could have a lot to do with, what many in the ag sector feel, brought some very off numbers.

"At that time, we were not done planting yet as we might typically be in most seasons, Hultman said. "This is going to be widely viewed with a lot of skepticism, especially with the corn planting number that came out."

The corn planting estimate for the 2019 growing season from the USDA came in at 91.7 million acres, which is up from 89.1 million acres a year ago.

"That is much more than anybody expected, myself included," he said. "Yes, we do have a lot of questions about this estimate. It is hard to absorb the stun of a 91.7 million acre estimate, especially where we have seen so many pictures of standing water all across the field and we have seen, week after week of rain showers going through time and time again, especially in the eastern Midwest."

"It's going to be a little bit hard to compute how the USDA got to 91.7, but I think I have a partial explanation."

Attempting to understand the bearish corn planting estimates, Hultman feels, because it was early June when the USDA conducted its surveys for this report, there were 17 percent of the acres not yet planted. Hultman believes the USDA simply assumed that those acres would eventually get planted.

"I don't think that's a realistic assumption, especially for those states in the eastern Midwest," he said. "That's why I do expect some reduction in this 91.7 million acre estimate coming in the days ahead."

U.S. corn planting estimates by state

"That seems a bit hard to believe," Hultman said.

"They actually increased acres from 5.35 to 5.5 million acres," he said.

"They kept their corn acres the same (as last year) at 2.3 million acres," he said.

Hultman said there is hope this will not be the final say in the corn planting acreage numbers.

"Typically, when there are revisions to the June planting estimates, they come in the August crop production report and I expect that to happen again this year," he said.

Hultman also shared a comment made from the USDA regarding last Friday's report.

"Farmers responding to the survey indicated that 83 percent of the intended corn acreage had been planted at the time of the interview which was significantly lower than the 10 year average."

"Keep that in mind that, at the time of this survey, 17 percent, roughly, of the intended crop had not been planted at the time," he said. "So I think we are going to see the USDA made some assumptions here that we are going to take issue with and, I think, are not going to stand up down the road, for instance, when we get to an August revision and most likely we will."

How does this impact corn price outlook?

Hultman provided an estimate on how he feels these corn planting acreage numbers e going to change the ending stocks.

"This is very loose and rough, but it will give us a bit of an idea," he said.

The current ending stocks to use ratio for new crop corn is 1.675 billion bushels, (bb) but that was based on 89.8 million bushels (mb). Hultman said if we do actually get the 91.7 million acres that USDA is looking for, then we will probably be looking at roughly a 14 bb crop and that doesn't do much for changing ending stocks from the current season.

"So instead of looking at an ending stocks to use ratio just under 12 percent, we would be looking at ending stocks to use ratio, in the new crop season, of about 14 to 15 percent," he said, "and that correlates to about roughly $3.50 to $3.60 cash corn prices. That takes a lot of that big premium out that we have been anticipating."

Soybeans

On the other hand, the opposite was seen for soybeans.

According to Hultman, soybeans estimate for planted acres came in at 80 million acres.

"That was less than anyone expected," he said adding the number is down from 89.2 million acres of soybeans planted in 2018.

If this estimate is accurate, this will be the smallest number of acres planted to soybeans since 2013.

U.S. soybean planting estimates by state

"These are big soybean reductions. Larger than expected," he said. "Just big, big reductions, not just in one area, but really all across the Midwest for U.S. soybeans this year."

What do the reduction soybean planting estimates do for the price outlook?

Hultman said the 80 million acre soybean planting estimate is down to roughly a 3.65 bb crop.

"That small of a crop would take about 400 million bushels off the current estimate of ending stocks for the current season," he said. "So instead of being out in the far right edge of ending stocks use ratio of 25 percent, that puts us back more in the normal area of 14 percent ending stocks to use."

"That correlates with about an $8 cash price for soybeans. It actually brings back a bit of a healthier balance to soybeans. And keep in mind, this is really not estimating a big increase from China or any repair in trade relations. This is looking at demand basically the way it is right now, which is rather beat up this year."

The three crop total of acres estimated to be planted to wheat, corn and soybeans is just over 217 million acres, which is down 8.8 million acres from last year's three crop total.

"On one hand, we did get a big reduction in planted acres that people expected," Hultman said. "On the other hand, it just got all weighted into soybeans. That is where the reduction got weighted. That is the big surprise."

What will August bring?

"I do think we will see reductions in those corn acres estimates, but because of this big drop in soybeans, that doesn't necessarily mean our corn acres are going to down to 85 or 86 million acres," he said. "They may just come back to 89 to 90 million acres might be the best we can hope."

Grain stocks estimates

Last week's report also provided estimates for grain stocks.

On June 1, for U.S. corn stocks, the USDA found 5.2 bb, which is down slightly from 5.3 bb a year ago.

"That is slightly less than the trade was expecting, so the demand was a little better than expected," said Hultman.

After three-quarters of a year of use for corn, the U.S. has gotten rid of 11.39 bb, which doesn't quite match the 11.6 bb from a year ago.

"This has been about the third best year of corn demand, but it's a slight reduction for the second consecutive year," he said.

The export situation says a lot about demand.

"We were doing very good two years ago, but things got a little more competitive this year," he said. "Last year we had an Argentina drought to help us out and Brazil's corn crop production was down, but this year, both their corn production estimates are up, so that has improved their export estimate outlook and our U.S. corn export outlook has come down a bit with that increased competition."

U.S. soybean stocks

On June 1, the USDA found 1.79 bb of soybeans still on hand in the U.S., which is up from 1.2 bb a year ago.

"That is a new record high, which is no surprise as most people know," Hultman said. "By now, we are on our way to ending stocks in excess of 1 bb in the current season."

So far for the three-quarters of the year, demand for soybeans is down about 300 mb from a year ago leaving 3.21 bb of soybeans that needs to be used up.

"This is the fifth best demand that we have seen, but down from the previous two years and obviously China's tariffs has a lot to do with that," he said.

Soybean exports

"Unfortunately, we still have that big gap with Brazil," said Hultman. "They have benefited from China's tariff that even started a couple of years ago when there were talks of tariffs coming. And, of course, the difference between our exports and Brazil's really widened in the current season when the tariff took hold and we are still projected a pretty sizable - about 700 million bushel - gap behind Brazil at this time."

If the U.S. can repair its relationship with China, there is a potential to come back and split those exports with Brazil.

"But right now, Brazil definitely has the trading advantage when it comes to soybean exports," he said.

 
 

 

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