USDA reports: How do you React to What They Say?
Thursday, April 7th, 2011
USDA usually does a fair job of counting acres and ears on a stalk. What can be seen is usually clear. However the Planting Intentions report issued Thursday is almost an example of USDA guessing about what farmers are guessing about. And the way the markets reacted, the report was a thin slice of time and time has now marched on to other issues. From now until planting time many farmers will be second guessing themselves, and trying to determine whether to stay with their plans, or maybe even plant more corn. The best that one can do is obtaining all possible information and make the best possible decision. Let’s start there.
Corn. Intentions reported to USDA were for 92.178 million acres, nearly 4 million more than last year, but within the range anticipated by the market. It was on the low end, but within the range. The total increase was 5% and the 12 Cornbelt states will also see a 5% increase in acreage, meaning marginal land will also be brought into production in a year where trend line yield may be hard to reach with a LaNina hovering. But what is the trend line yield for 2011? IL economists Darrel Good and Scott Irwin say that is a hard question to agree upon in their recent marketing brief. They say, “The implication of the planted acreage estimate for the size of the 2011 crop hinges on yield expectations. In general, the market may still have too high of an expectation for the trend yield in 2011 and therefore too high of an expectation about actual yield.”
Soybeans. While corn acres grew 5%, soybean acres diminished 1% from last year, down to 76.6 million. The nearly 800,000 acre drop came in large part from Iowa, where corn acres climbed 500,000 and bean acres dropped 400,000. There were just small bites taken out of state soybean acreage numbers for the rest of the Cornbelt. Interestingly, the Dakotas are going to make up for what was not planted last year due to a late 2009 harvest and a wet 2010 spring. Combined, North and South Dakota are planting 850,000 more corn acres and 350,000 more soybean acres than in 2010. It reflects more normal planting than bringing new fields into cultivation. Projected soybean acreage was at the low end of the range forecast by the market.
USDA’s Quarterly Grain Stocks report provided the octane to the grain market which caused it to close limit up on corn, and beans and wheat riding on the corn coattails. With corn stocks at 6.5 billion bushels the market is concerned that tight stocks will get tighter when USDA makes its next supply demand report on April 8. The estimate was below the trade guess and 1.2 billion bushels less than the same report a year ago. Good said, “In the last few days there was a lot of chatter about the corn market not having the “feel” of tight stocks and some had expected the March 1 stocks estimate to be much larger than the average guess. The stocks estimate implies a very high rate of feed and residual use of corn in the second quarter, and now, the first half of the year. Just when it looked like the rationing job had been completed, this report suggests that corn is still being used too rapidly. The weaker old crop prices going into the report may now have to be reversed.”
Soybean stocks were estimated at 1.25 billion bushels, less than a year ago and less than the estimate of the market, which implies a large residual use of beans in the last 3 months. Good says, “Like the corn stocks estimate, the estimate of soybean stocks implies that more rationing of the 2010 crop is required. With such tight inventories of corn and soybeans, the size of the 2011 crops takes on even more importance.”
The challenge now is to determine whether to plant more corn, and even what maturity corn. Another challenge is to watch the relationship between the corn and soybean markets and determine whether to make any cropping changes.
While acreage expectations for 2011 increased, stocks of corn and soybeans decreased a bit too rapidly for comfort as reported in USDA’s latest report. The situation implies the need for higher prices that will ration the diminishing supply before the end of the marketing year in August. Overall, corn acres will increase 5%, but even with a trend yield, will it be enough to meet the demand. And weather has not yet been a factor.