Rural Voice June 12, 2019
“When it rains, it pours.” This expression sums up the 2019 planting season very well. Concerns about the possibility of extremely large prevented plant acres caused the market to rally recently, as uncertainty about both acres and potential yields intensified. Commodity funds that were record short the corn market, aggressively bought back their positions as they were squeezed with the rapid advance of corn futures, rallying 27% in 30 days. Given the state of the US corn plantings, it was not surprising that the futures market rallied so far, so fast. As of the June 2nd USDA planting report only 67% of the intended corn acres were in the ground. As of June 9th the US typically has 99% of its corn acres in the ground, this year the US crop was 83% planted by the 9th, the slowest planting pace ever recorded. The US Midwest received record rainfall in May, and March to May was the wettest also, other than one year in the early 1970’s. The result of this excessive rain and slow planting pace is the reduction of corn acres, both in the US and here at home. During the late May period, the market started trading an expectation that US corn acres would be reduced between 8 – 12 million acres from initial expectations. Under this scenario, assuming 170bu average yields in the fall, we would either have an adequate carryover at the end of the crop year or have close to the tightest carryout on record. Therefore the market started showing choppy performance, as everyone has a varying opinion as to planted acres and potential yields.
On June 11th the USDA released its crop production report. In this report, the USDA lowered planted acres only 3 million acres from their May projection for corn. This is definitely narrower than the average expectation and therefore many think it will likely be into the June 28th planted acreage report before the full extent of prevented plant acres will be realized. The USDA was quick to reduce expected yields for corn in the same report. Expected yields dropped 10 bushels per acre in this report, from 176 bushels per acre to 166 bushels per acre. This lower yield projection being attributed to later planting.
With these USDA numbers as a starting point we see a dramatic reduction in US ending stocks year over year. If these estimates end up being correct we would still see a somewhat comfortable stocks to use ratio through the year however, running about 12%, down from the original burdensome estimate of about 17%, if all the intended acres would have been planted and achieved average yields. The 12% stocks to use ratio is equal to about 10 million acres at a 166 bushels per acre yield. Therefore if acres are in fact lower than the current estimate (which many anticipate they will be) we could see ending stocks fall to worrisome levels – in fact tighter than the 2012-2013 season, if acres fall too much. If production estimates were to approach record tightness it would cause a major price increase to ration corn demand. So the question that still overhangs the market is what will the final corn planted acreage be? From here how will the crop develop over the summer?
South American countries are happy to sell into the world market to make up the potential US shortfall. Brazil’s corn (safrinha) crop is reported to be large, with some of the largest growing areas likely to have record yields. Recently it was reported on the news wires that Brazilian corn was being imported into the United States, received in the South Eastern US by large hog integrators. Argentina is also forecast to be producing a larger corn crop this year. When considered as a whole, South America is estimated to produce about 153 million tonnes of corn this season. This South American corn estimate is compared with about 119 million tonnes last year, up 29% from last year.
Soybeans are not projected to have preventative plantings in the US at this time. The USDA held steady at 83.8 million soy acres with a 49.5 bushel per acre yield. If this production is realized it will be the first time ever that US ending stocks top the 1 billion bushel mark.
Into Mid June we don’t have a dissimilar situation here at home. Currently we have areas of the province where producers are yet to turn a wheel due to the constant rain accumulation. As a result of the slow corn planting Agricorp has bumped the crop insurance planting date by a couple days. Corn acres will be lower and bean acres will likely be steady to higher.
It’s the opposite problem in Western Canada. The wheat crop there is in jeopardy due to drought and yields will reportedly be greatly affected if rains do not come soon. Australia is dry again, following last year’s production issues which lead them to import Canadian wheat. Likewise areas of the Black sea export region are showing dryness concerns. The US Hard wheat crop is large and will work into feed rations considering the challenges faced by corn production.