Clark: USDA report flawed, tanks corn rally

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The U.S. Department of Agriculture rocked the corn rally with the June 28 release of new estimates of corn and soybean planting. December corn futures rode an almost 40-cent range in wild trading that saw markets briefly higher after the USDA news, then saw corn prices plummet.

Soybeans, however, had modest gains on contrary news. November futures closed up 11 cents at $9.231⁄4 on a 19-cent range. December corn futures closed down almost 20 cents June 28, to $4.26.

This came as USDA published an estimate of U.S. planted acres at 91.7 million. The trade was expecting 86.6 million, which is a staggering difference.

Big difference

It is significant. The number is based on June 1 surveys of farmers, who may have still been hoping to get corn in. At the same time, USDA estimated soybean acres at 80 million, much lower than the trade’s pre-report estimate of 84.36 million acres.

Again, traders are aghast at these numbers. A lot of things happened between June 1 and June 28, most of them not good. Yes, farmers were still planting soybeans June 28, but the corn has been forgotten. Whatever hope there was on June 1 to plant corn still, evaporated in the rainy days after that. Now, the trade is engaged in moving on.

To say most players are dubious about the numbers is an understatement. It would be closer to the truth to say that no one believes them, but will be forced to trade them for a while. USDA says it will re-survey corn acres in 14 states. Any results from that would not show up until the August report, so we are stuck with these numbers for a long time.

Report in doubt

It is interesting that in 1993, a wet year similar to this one, we had a market crash at around the same time. The big rally did not start until August. The market high did not occur until the following January, when the reality of the wet year was counted in the bins. That could happen again.

The mentality of the paper traders is that “rain makes grain.” The reality on the farm is that rain makes mud balls and little yellow corn plants.

The strongest remark I have heard on this so far came on our Russell conference call July 1 when someone said, “I hope someone gets fired over this report. It should never have been released.”

Prices all over

Prices on the futures markets the morning of July 1 showed follow-through from June 28. December corn futures were down to $4.243⁄4. Looking at the charts, we put the low in December futures back in the middle of May. The high came the middle of June, at $4.73, on wet weather.

The weather continued, but the market slid to $4.501⁄2 on June 27. On June 28, we had a giddy high the minute after the report, for what reason I do not know. The low came at $4.20 3⁄4 later in the day. On the morning of July 1, we traded as low as $4.23 1⁄2.

The November soybean futures also show some follow-through, but to the upside. November beans are up 2 cents at $9.25. If any traders actually believed the soybean planting numbers, soybeans would be much lower.

Everyone uncertain

This modest price gain is a reflection that the traders are already “fading” the report. So, we are left with classic uncertainty in a market that is critical to farmer success this year.

For those with reduced crops because of prevented planting and poor conditions, it is crucial that the surviving crop be well sold. It is also critical that farmers be prepared to sell something, even when it seems the crop may be totally in doubt.

The question is, when to sell?

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1 COMMENT

  1. Thank you, Marlin, for some “boots on the ground” common sense and honest-to-goodness FACTS (rare these days in government reporting!)

    Again, FDA with “Fake News.”

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