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More bearish news from the USDA

By Staff | Apr 8, 2019



The latest USDA quarterly grain stocks and annual prospective plantings reports showed bearish news that one analyst had anticipated seeing.

Todd Hultman, DTN lead analyst, said the end of March USDA report, released last Friday, is a combination of prospective planting and grain stocks, which, historically, has been a volatile report and once again, proved itself to be with a big drop in corn prices immediately after the report was released.

“We have seen double digit moves in four of the past five years and it looks like we are getting another double digit down today,” he said.

Prospective planting estimates

The USDA released a prospective planting acreage for corn at 92.8 million acres.

“That is more than the trade was expecting and myself included,” said Hultman. “It’s a higher number than a year ago.”

He added, if the 92.8 million acres of corn planting estimate is correct, that is up 4 percent from last year’s 89.1 million acres.

“This is also higher than the planting estimate of 91.2 million acres,” he said. “The big question is, is the U.S. going to be able to plant 92.8 million acres of corn in the spring of 2019? That is the question that none of us know yet and has yet to be determined. This is an early estimate and is obviously hitting the market hard today, but the story is not over.”

Hultman said, Iowa, the largest corn producer in 2018, is looking for about a 400,000 acre increase with South Dakota having an estimated 700,000 acre increase in corn acres this year.

“If we are having higher corn acres, a big chunk of that is going to come from soybeans,” he said.

The USDA’s prospective planting estimate for soybeans for the 2019 growing season came in at 84.6 million acres – down 5 percent from last year’s 89.2 million acres.

“It is less than what was expected today,” he said. “We were looking for 86.2 million acres. There are lots of questions about what actual planting will actually come to flourish this year.”

The biggest reduction in soybean acres is estimated to come from Iowa with 600,000 less acres and a 300,000 acre reduction slated for Illinois.

Other prospective planting acres included wheat, which marked at 45.8 million acres, and 13.8 million acres estimated for cotton.

If those estimates hold true, Hultman said it will be a new record low for wheat acres planted.

He said these prospective planting estimates should be “taken with a grain of salt,” explaining the USDA gets these estimates by surveying producers in the first two weeks of March.

“As you know, much of the Midwest has suffered some pretty severe flood distress during that time,” he said. “Eastern Nebraska flooding started March 6 and progressed rapidly from there. There has been a lot of damage and destruction during the two week survey period. That is certainly going to taint the numbers the USDA gave us today and we will all have to keep that in mind.”

But he added that he has a lot of concerns about Friday’s report.

“One thing that bothers me a bit, when we take the top three totals from corn, soybeans and wheat, it comes to just less than 223 million acres,” he said. “That is down 3.2 million acres from a year ago – they are estimating a reduction in total from a year ago.”

“In fact, that is the lowest three crop total we have seen since 2011,” he added. “I did not see a remark in the USDA text, but I would guess USDA would say that low three crop total is part of their nod to the flooding situation that is going on. Not that I can speak for them – I am guessing that is playing a part of what they would say.”

Hultman wants to emphasize that the flooding we have seen to date could just be a part of the story.

“We haven’t seen preventive planting acres much the past few years,” he said. “Most of us are going to remember 2013 where we had very severe flooding and snow and wet conditions in the north central Midwest. It actually resulted in over 3 million acres of preventive plantings for corn. Similar for 2011 – 3 million corn acres were not planted.”

“When you look at the potential of this year, it seems not unreasonable to think that we could be seeing at least a similar, if not higher numbers than what we saw in 2011 and 2013 – mainly for corn, possibly for soybeans also, but mainly for corn. This whole planting estimates story is not done yet.”

Grain stocks

The March 1 snapshot of the grain stocks will be the last before look at grain supplies and inventories prior to the flooding of 2019, according to Hultman.

In his analysis, he said the USDA gave corn another bearish number of 8.605 billion bushels (bb). This number was higher than the expected 8.34 bb the trade was looking for.

“It’s down a little bit from last year’s 8.89 billion bushels, but higher than expected and that is one reason we are getting the bearish response on the corn price today,” he said.

On-farm corn stocks came in at 5.13 bb, which is up from a year ago.

“I think that is probably not too much of a surprise given the fact that we just really have not had a good selling opportunity in the cash corn price yet through the winter,” he said. “Lack of opportunity and of course difficulty now navigating water ways; it is very difficult to move corn. It is very difficult to get into many areas. Roads and bridges are wiped out. Moving grain is going to be a real challenge in a lot of areas this spring.”

What does that 5.13 bb of on-farm corn stocks do for demand?

“That means in the first half of 2018-2019 we saw almost 8 billion bushels of corn disappear. That was the third largest level for the first half of the season on record; the highest demand period coming two years ago,” he said. “We were hoping for a little better demand today, but that did not show up and I think as we look at the culprits we have to note that we have had a drop off in corn export activity of recent. The ethanol market continues to be a concern.”

He added March soybean stocks were not bearish and the 2.72 bb of U.S. soybean stocks number was not a surprise and very much expected.

“It was very close to what the trade was looking for,” he said. “Of course, that’s about the 2.11 billion bushels from a year ago. Given the tariff situation, we knew that today’s number was going to be a record level high for March 1 soybean stocks and it certainly doesn’t help bolster the case for higher soybean prices.”

On-farm soybean stocks came in at 1.27 billion bushels, up from the 855 million bushels from a year ago.

“You can see we have been talking about higher ending supplies of soybeans in the current season for several months now due to the lack of demand, the lack of participation from China,” he said, “and we are seeing another facet of that show up in this number today.”

With the soybean stocks number, how was soybean demand in the first half of the 2018-2019 season?

“It was actually the lowest in six years,” Hultman said, adding that 2.29 billion soybean bushels “disappeared in the first half of the season. We are probably on par with where we were about 2010 and 2014, in that era. It’s not a surprise, but obviously a tough hit given the tariff China has on U.S. soybeans.”

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