USDA found about 650 million more bushels of corn than I expected in its Annual Production Report. Virtually all of the increase came from adding 300,000 more harvested acres.
One would have thought that USDA would have had the acreage down by November, but they were still making significant acreage adjustments in January.
Such USDA revisions make estimating crop production a guess, which is why we recommended adding option spreads to corn and soybean sales ahead of Tuesday’s report. $4 20100 corn is more profitable than $4 2009 corn, because 2010 costs will be lower as fertilizer prices have come down significantly.
Hopefully, 2009 drying costs were an anomaly that won’t be repeated. The EL Nino suggests potential for good yields. ISU climatologist Elwynn Taylor has stated that we don’t get sub-trendline yields in El Nino years.
Outlooks can change. USDA may not have quality losses factored into corn production. Field losses from unharvested corn may be more severe than estimated. Many years, corn can stand during winter with moderate losses, but this isn’t a normal winter.
100 million bushel might be feeding pheasants and deer. Poor quality grain will not store well, so this could pressure the market lower this spring as farmers push sales to avoid storage risk.
Some would think a 6 million acre reduction in wheat acreage would be bullish. It’s not when domestic and global wheat stocks are adequate. The U.S. wheat stocks-to-use ratio is 49 percent compared to 13 percent for corn and 8 percent on soybeans. This is bearish to corn and soybeans, because those lost wheat acres will grow row crops next season.
The soybean market is well supplied. U.S. stocks are not as tight this year as recent years and if South America comes through with favorable weather and production, China should get a good deal on soybeans.
Raising interest rates and bank reserve requirements in China generated selling in commodities last week. That’s the short term reaction, but the measures taken by Beijing are meant to sustain economic growth there, so their bubble doesn’t burst. It’s better to control growth by taking air out of it. This action by Beijing may well prove to be bullish for commodities.
USDA says that farmers produced 13.2 billion bushels of corn in 2009. We doubt that it will consume like 13.2 billion bushels because of poor quality. Lanworth Satellite Imagery analysts peg the 2009 corn crop at 12.3 billion bushels and 2009 soybean production at 3.08 billion bushels. That’s 900 million bushels of corn and 280 million bushels of soybeans difference between Lanworth and USDA estimates.
Lanworth isn’t backing down. They say USDA “Methodology doesn’t let them appreciate the principal problem with the crop this year – test weight.” Lanworth calls themselves scientists so when there is a scientific discrepancy, they want to know why.
DTN wrote, “Lanworth called elevators uniformly distributed across crop areas for a good geographic distribution, and for every one called, a standard set of questions was asked. Lanworth’s survey showed dry corn test weights in the Corn Belt fell by 5.5 percent from 2008, and, when applied to bushels per acre, the test weight data imply corn mass yield well below USDA’s November estimate and slightly below Lanworth’s most recent model estimates.”
For sure, most farmers in the central and northern Corn Belt can confirm that test weights were low. Part of the reason there is still as much corn left unharvested is because of high moisture/low test weights. A lot of the “bushels of corn” are so light they don’t have much power in them. Lanworth says reconciliation between USDA and their crop production estimates “will come out in stocks reports.”
“To make the same amount of ethanol will require more bushels of lighter weight corn. The stocks reports are the principal means for the crop to grow smaller; next September when NASS reconciles the stocks surveys with acreage and yields, it’s there we will see the final reckoning.”
There may be a final reckoning and there may not, but September is so far off it’s not going to matter to farmers who have to sell grain to pay bills in March, April and May.
Contesting the size of the crop with USDA is like fighting city hall. They will break you before you will ever win.
Farmers holding grain now are a little like the deer who flashed in my headlights on the way to work after the bearish USDA reports.
Last year, they stored through a lot of bearish news and came out okay. Last year, carryover was still tight, available acreage was tight, ethanol demand for corn and Chinese demand for soybeans were still growing, Argentina was in a major drought and projected carryovers were tightening too.
This year, I don’t know that any of that is the same, so fundamentals are bearish.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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