Grain markets still adjusting to USDA numbers

By Marlin Clark

March 31 is always a big day on the commodity calendar. Unless it comes on a weekend, that day we get the Planting Intentions Report and the Quarterly Grain Stocks Report. There are years that this is a non-event, but this was not one of them. USDA made some large adjustments in expected acres in the report Friday, and the markets are still adjusting as of Tuesday morning.

There was a time when a report like this would give us a huge immediate reaction, but, for the number reported, this reaction was muted. Well, muted, but still continuing.

The numbers

Going into the report, the market expected the farmers to plant 88.214 million acres of soybeans and just under 91 million acres of corn. This would represent a large drop in corn acres from the 94 million of 2016. It would be a huge gain in soybean acres from the 83.433 million of 2016.

So, what happened? The shift from corn to beans as predicted by USDA was much larger than anticipated. USDA now says we will plant 90 million corn acres and 89.5 million soybean acres.

After all the run-up in corn acres promoted by the ethanol boom, we are back to soybean acres being nearly the same as corn.

Reaction

The trick to digesting big reports is analyzing the reaction. The report should be a shock to the market, with 90 million corn acres being the lowest since 2015. The low trade guess ahead of the report was 90 million acres. One could expect a huge price response to a further million acres less being planted.

In fact, corn prices have rallied, but at a rather modest rated given the supposed shocking report. December corn futures put in a low of 3.78 3/4 Friday ahead of the report. Since then we have had three up days, with the current price, on Tuesday morning, at 3.92 1/2. On Monday we got as high as 3.95. This is no huge rally, given a recent high of 4.04 on the last day of February.

Soybean futures have continued the decline that we saw before the report. We have made new lows, with 9.49 November futures on Monday the current worst price. We lost just over 11 cents from the low the day before the report to the low the day of the report. We are more than three cents above the low here on Tuesday.

So, the reactions in the market to this report, expressed in corn and bean prices, is muted. Makes one think that, no matter what numbers the traders published as guesses, they were not really surprised by the report. A surprise would have been nice, at least for corn.

Long-term trends

As a long-time observer of the markets, I am thinking this morning of three long-term trends that are defining our current year-to-year markets.

One was the trend of growing acres in South America, to the point that a few years ago they started producing more soybeans than we do. All this from a billion dollars seed money by the Japanese a few decades ago! This trend continued this year, even though we had record production.

The second trend is the ratio of planted soybean acres in this country to corn acres. In the early years of this century, the trend was for soybean acres to replace corn acres.

The 2006 Planting Intentions Report predicted 78 million acres of corn, 76.9 million of beans. The talk was that it was inevitable the beans would pass the corn in acres. We all know what blew up this trend: The ethanol boom pushed corn acres, and total acres.

In 2007 we saw planting Intentions of 90.5 million corn acres, 67.1 million soybean acres. By 2013, we expected 97.3 million corn acres, 77.1 soybean acres. That was the peak for corn, as the $8 corn went away, but the input costs that completion had driven up, mostly remained.

Now we are back to looking at the same acres for both crops, relatively. The difference is that the total acres of the two is now almost 25 million acres more. We have planted the CRP, taken acres from other crops, and plowed up the permanent pasture. We grow corn instead of oats and hay. That is the third long-term trend — bigger planting of corn and soybeans.

And, this year and next, we project growing carry out bushels and prices that do not sustain us.