Few corn acres switched to beans
USDA released its much-anticipated June Acreage report on Friday, June 28. Because of wet planting conditions across much of the Corn Belt, including Iowa and Illinois, many expected about 2 million fewer acres of corn would be planted than reported in the March Prospective Plantings report, with about half of those lost corn acres being switched to soybeans. Last Friday’s June Acreage report, however, indicated that largely didn’t occur. USDA estimated 97.379 million acres were planted to corn this year, which is about 97,000 acres more than in the March Prospective Plantings survey and 224,000 acres more than in 2012 (Table 1). Of the 97.379 million acres planted to corn, USDA forecasts that 89.135 million acres will be harvested for grain, in line with historical abandonment rates and acres cut for silage.
USDA estimated that 77.728 million acres will be planted to soybeans in 2013, which is almost 300,000 acres less than anticipated, but is still the largest-ever soybean acreage (Table 1). Like corn, soybean planted acres surpassed the acres reported in the March Prospective Plantings survey. USDA forecasts harvested acres of soybeans to be 76.9 million acres in 2013.
The 2013 corn acreage came as quite a bearish shock to the market on Friday, with new crop December 2013 futures closing down $0.275/bu for the day at $5.11/bu. For the week, new crop futures lost $0.4525/bu. And, even though the soybean acreage number was slightly below expectations, the record large acreage combined with spillover weakness from corn resulted in new crop November 2013 soybean futures losing $0.2325/bu on Friday. Last week’s close for November 2013 soybean futures, at $12.52/bu, was almost $0.75/bu less than the late-May high when soybean prices rallied on late planting concerns.
So, the ‘surprise’ generated by the report begs the question: “How could actual planted acres be so different than expected?” A couple factors likely led to the discrepancy. First, many of the pre-release expectations bantered about in the industry tend to be based on anecdotal evidence and examples of planting problems, etc. While important to the localized acres and farmers affected, it doesn’t have as large of an impact on national numbers as would be expected by aggregating that kind of information to the entire country. Second, although the March Prospective Plantings numbers were the best survey-based estimate of planted acres until last week’s report, forecasted profit margins available in April and May would have suggested both corn and soybean acres could be substantially higher from what farmers reported to USDA on March 1. If that indeed occurred and some acres were subsequently lost due to prevent planting or switching to soybeans, the June acreage estimates could well be close the March estimates – which they were. In fact, almost 300,000 more acres were or will be planted to principle crops in 2013 than was reported in the March Prospective Plantings report. At 325.6 million acres planted to principle crops this year, it is still about 720,000 acres less than last year’s record crop acres. Across the Corn Belt, only North Dakota, Minnesota, and Iowa planted fewer acres to principle crops than were expected to back in March. Only those three Corn Belt states, plus Illinois, planted fewer acres to principle crops than last year. Interestingly, North Dakota will still plant a record 3.9 million acres to corn this year while South Dakota will plant a record 4.8 million acres to soybeans in 2013.
Overall, it appears that few of the Corn Belt states lost nearly as many corn acres to prevent plant or to soybeans as many expected. Instead of 2 million acres or more, Iowa and North Dakota each planted 200,000 acres less than expected back in March and Minnesota planted 300,000 acres less than expected. Nebraska planted 300,000 more acres than expected back in March, offsetting part of these decreases. Other Corn Belt states generally saw no difference between March and June acreage forecasts.
Along with the Acreage report last Friday, USDA released its quarterly Grain Stocks report. That report indicated that June 1 corn stocks totaled 2.764 million bushels, 91,000 bushels less than the average expected (Table 2). Soybean stocks, at 435,000 bushels, were also below expectations. These numbers were both quite friendly to old crop prices and underscore the tightness in old crop supplies. On Friday, July corn closed $0.12/bu higher and July soybeans closed $0.16/bu. USDA has been forecasting 2012/13 corn ending stocks to be 769 million bushels on August 31, 2013. If realized, that would mean that demand in the June-August quarter would have to be less than 2 billion bushels, which is a level we haven’t seen since 2003 (before ethanol demand). Thus, it appears that prices for old crop corn and soybeans will stay relatively high through the summer – especially compared to new crop prices. Bull spreading (buying nearby futures and selling deferred) was a noted feature of the futures trade on Friday following the bullish Grain Stocks report and bearish Acreage report.
Corn Sellers Recommendations:
- The bearishness from last week’s reports will likely influence prices yet this week. However, futures will eventually begin to refocus more on weather. At this point, forecasts for the next two weeks look generally favorable across the Corn Belt.
- At this point, producers likely only have small increments of old crop corn remaining. It shouldn’t be necessary to make ‘panic’ sells after these reports, but do be ready to price remaining bushels on any weather problems that develop. Every day that passes is one day closer to harvest. The spread between old crop July futures and new crop December futures is now $1.68/bu. The cash price spread is even greater – almost $2/bu in eastern South Dakota. Even though this year’s new crop will be later than last year’s, at some point the futures spread and basis changes will converge between old crop and new crop.
- By now producers have likely priced 5-25% of insured new crop bushels. Continuing to make pre-harvest sales through the summer could still be profitable, even after the sharp losses last week. For example, breakeven budgets two months ago likely were more conservative on expected production. So, for those who have a good crop and can reasonably increase their expected number of bushels produced this year, the breakeven price (in $/bu) decreases. That, combined with grain already priced at profitable levels, can help lower the price needed on remaining bushels to generate a positive profit margin.
- Finally, sellers should continually update their expectations for the new crop pricing opportunities. While anything is possible in global commodity markets, almost nothing at this point would suggest the possibility of $6-8/bu corn prices like we saw last year. Instead, making sales in the mid-$5/bu range may appear more likely at this point.
Corn Buyers Recommendations:
- Based on previous recommendations, corn buyers would have secured nearly all old crop supplies needed to get through the summer months.
- New crop purchases can be delayed until harvest basis weakens, provided weather problems don’t develop in the growing crop.
- The information in this report is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers. The author and South Dakota State University disclaim any responsibility for loss associated with the use of this information. There is substantial risk of loss in trading commodity futures contracts and traders should consult their brokers for a full disclosure of these risks to determine whether such trading is suitable for them in light of their circumstances and financial resources.
Source: Darrell Mark
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