Planting report leads to market rally

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Money markets graphic
(Farm and Dairy file photo)

Prices rallied wildly Thursday, March 29, on the Chicago Board of Trade as the U.S. Department of Agriculture’s Planting Intentions Report shocked the markets. Much lower plantings than expected fueled a rally that extended through the day, then showed some follow-through Monday after the holiday (Good Friday) weekend.

Corn and soybeans made new new-crop highs Monday. Thursday, the December corn contract came within a quarter of a cent of the old high, and November beans made a new high by a penny and a quarter.

December corn futures touched 4.16 briefly before closing fractionally lower at 4.11-1/2 Monday. November soybean futures touched 10.60 Monday before closing down seven and three quarters’ cents at 10.40.

Surprise announcement

The trading followed a predictable pattern for a surprise announcement. Futures were wildly higher, with new corn gaining 14-1/2 cents and new beans gaining 31-1/4 cents Thursday. With the big gains, we had early follow-through Monday, but it did not last.

Tuesday morning in early trading we are seeing December corn at 4.11, down a quarter, and November beans up five and three-quarters at 10.45-3/4. July new wheat went along for the ride with a nearly five-cent gain Thursday, followed by a nickel loss Monday.

We are currently back up nearly a nickel, at 4.68-1/4. That trade is still well off the 5.31-3/4 contract high made on March 2nd. In fact, the low Thursday before the sympathetic jump was 4.59. That is the lowest trade since Jan. 25

In between we pushed prices sharply higher on bad weather in the Plains, but the market is now shrugging off disappointing crop condition reports there. So, what was the surprise in the Planting Intentions Report?

By the acre

Traders expected farmers to plant a million more acres of soybeans this year and much of a million fewer acres of corn. In fact, soybeans came in a million acres lower and corn one and a half million acres lower.

Wow! The actual numbers show that the 2017 corn planting was 90.16 million acres. Traders expected 89.42 million acres of corn, but got an estimate of 88.02. That is more than two million acres less than last year!

Last year, American farmers planted 90.13 million acres of soybeans, very close to an even split between the crops. We keep teasing the market to plant more soybeans than corn, but it has only happened one year, in 1983, when government incentives pushed acres higher.

This year it will happen again, if the government estimates are correct. This year we expected 91.05 million soybean acres according to the average trader estimate, but USDA gave us 88.98.

This shock in news resulted in the new contract highs in corn and soybeans, and in sharply higher prices in the old crops.

It must be noted that new crop corn futures are now almost a quarter of a dollar higher than old crop. The new crop soybean futures are very close to the same as the current old crop.

This points to a bias that the two years of crops we are currently flooded with will get smaller. It also reminds us that we will have at some point what we call “convergence,” where the prices will come together.

Grain report

That could be with higher old crop or lower new crop prices. Lost in the flurry of trading Thursday was the USDA Quarterly Grain Stocks Report. This showed a March estimate of 8.888 billion bushels of corn still in the bins.

This is the largest stocks ever reported! Think about that for a minute. The trader estimate was 185 million bushels lower than the USDA estimate. This is the pile that keeps us from higher old-crop prices.

This is also the pile that suggests we got too excited about lower corn acres. We have so much corn on hand that the lower acres should not have affected the market so much, perhaps. Where did all the total acres go?

One idea is a large increase in cotton acres. I remember that at our agronomy meeting in Andover last month a chemical rep was bragging about how their new product would bring cotton back east of the Mississippi.

Weed pressure from one escape rascal had taken cotton out of the mix in the Southeast. Maybe he was right.

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Marlin Clark is an associate of Russell Consulting Group, with a local office in Williamsfield, Ohio. Comments are welcome at 440-363-1803.

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