A bullish acreage and grain stocks report
By KRISS NELSON
June 30, USDA released their annual acreage report and a quarterly grain stocks report.
Historically, these reports have been known to be market movers and the markets responded positively that day.
“These are two very big, important reports in the life cycle of grain prices,” said Todd Hultman, DTN grain market analyst. “We often have big price responses to this particular June 30 report. In fact, we have had double digit responses in December corn and November soybean prices in the past four of the past five years. Today added to that streak seeing very strong grain in December corn and November soybeans.”
USDA acreage estimates for corn came in at 92.7 million acres, which Hultman said was less than what the market was anticipating.
The 92.7 million acres is up from 90.8 million acres a year ago, and is the highest total in five years.
A state by state breakdown of last year’s top corn producing states shown a reduction of about a half of a million acres in Iowa with an estimated planting of 13.1 million acres.
There was a similar reduction in Nebraska; a small reduction of 100 million acres in Illinois. Corn acres went up in Minnesota by a half of a million acres and they went up the most in South Dakota with an additional million acres being planted in that state this year.
“South Dakota and North Dakota had a lot of prevented planting acres in the previous year and because it was so dry early this year, we anticipated those coming back and that’s where we see the big increase in South Dakota,” said Hultman.
What does 97.2 million acres of corn mean for corn prices?
“It is difficult to say, because, obviously, we don’t know what yield is going to be this year,” he said. “Weather is still the big determining factor.”
The new planting estimate, with a yield of 175 bushels an acre brings production to just under 15 billion bushels.
“I am considering that USDA’s early yield estimate of 179.5 (bushels an acre) is just too high considering the drought we have in the northwestern Corn Belt and the fact that some of the increased acres here are coming into the Dakotas where we typically have lower yield estimates. It’s not like Iowa or Illinois are adding acres,” said Hultman.
The very early ending stocks to use ratio is at 8% versus the 7% in the current season. That points, Hultman said to roughly $5 a bushel cash corn price.
“It is not as tight as the situation as we are in the current season, but again, weather is still a big risk. This will be a fluid estimate that changes frequently through the summer ahead,” he said.
USDA’s estimate of 87.6 million acres of soybeans planted in 2021, Hultman said could be the surprise of the day.
“I didn’t want to believe it and apparently it is true,” he said adding he was looking for 90 million acres.
The bullish number brought November soybeans trading up 79 cents after the report was released.
Acreage changes in the top soybean producing states include 1.4 million acres of soybeans planted in North Dakota with some modest increases in Illinois and Iowa was raised from 9.4 million acres last year to 9.9 million acres.
What can the ramifications be from the big increase coming from North Dakota?
“We can’t necessarily expect higher yields from that state, especially given the drought situation they’re in this year,” he said. “It is going to be tough, I think, to push these yield estimates too high on both corn and soybeans this summer.”
Hultman said the tight supply situation continues with USDA estimating 135 million bushels of soybeans in the current season. That doesn’t appear to change much with only 87.6 million acres planted.
With a rough estimate of 4.34 billion bushels with a 50 bushels an acre yield, an early ending stocks to use ratio is extremely tight at 3% of annual use.
“We are still looking at the same scenario in the new crop season ahead. Even roughly 50 million bushels tighter,” he said. “Obviously, there is a good chance we are going to have some price rationing again, just as we saw in the recent season. It is a very difficult situation and one of the reasons November soybeans are trading much higher now.”
As an analyst, Hultman said he feels the quarterly grain stocks report are as equally important as the recently released acreage estimates.
“They tell us a lot about demand that we don’t have any other way of knowing and they give us a good check and balance on the whole WASDE estimating process,” he said. “This is the one quarterly report that as of June 1, gives us very important information about how many corn, soybeans and wheat there is in the system and helps keeps our estimates in check.”
The report shows corn stocks coming in at 4.11 billion bushels, which are down from 5 billion bushels a year ago.
“That was 90 million bushels less than expected,” said Hultman. “We were looking for a lower corn stocks total, but thought it would come closer to 4 billion bushels given the strengths of the futures spread we have been seeing in the July contract over the September contract. An incredibly strong premium trade in there, which hints at a very tight supply situation in corn.”
After three quarters in the 2020-2021 season, corn demand has exceeded 12 billion bushels for the first time in history, according to Hultman.
“Obviously we have to say thanks to large, unexpected purchases from China earlier this year. That has been a real surprise in the market and a real thrush on corn prices since last fall,” he said.
Soybean stocks also came in a little less than expected on June 1. USDA found 767 million bushels, which was less than the 795 million bushels the market was looking for and is down, Hultman said, fairly sharply from 1.38 billion bushes a year ago.
Demand also hit a record high for soybeans after three quarters with 3.93 billion bushels of soybean use.
“We have never seen that much in history,” he said. “That is a record high by a wide margin and again, came largely from aggressive buying from China that was even larger than expected this time a year ago.”
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