Special Market Update

Who Believes USDA’s July 11 Report?

The USDA shocked the market last Thursday when they issued their monthly supply and demand report.

The following numbers were released last week:

• Beginning stocks of corn – increased 145 million bu., from 2.195 billion bushels to 2.340 billion bushels.
• Acres of corn – increased 1.9 million acres, from 89.8 million acres to 91.7 million acres.
• 2019 corn production – increased 195 mil. bu., from 13.680 billion bushels to 13.875 billion bushels.
• 2019 U.S. ending stocks – increased by 335 million bushels, from 1.675 bil. bushels to 2.010 bil. bushels.

If traders believed that the USDA numbers were accurate, the corn market should have been down sharply on Thursday. (In fact, a couple of minutes after the report’s release, corn was down 9 cents per bushel). By the end of the trading session, however, corn prices were 18 cents higher than they were just after the report was released, closing 9 cents higher for the day. Price action saw continued strength on Friday, closing another 10 cents higher.

Obviously traders did not believe the 91.7 million acreage number that was used. Most people believe that while farmers on June 1^st may have intended to plant that many acres, wet conditions in May and June prevented all of those acres from being planted. In fact, shortly after the USDA released the 91.7 million acre estimate, they announced that they would resurvey farmers around August 1^st, and release the results of that survey on August 12^th. USDA will also start using data provided by the Farm Service Agency, which compiles actual acres planted and not planted certified by all farmers. This should be more accurate than a survey taken of less than 1% of the actual farmers back on June 1^st.

How many acres of corn did not get planted? Estimates range from 3 million acres to 9 million acres. Let’s assume that the number is 6 million acres (mid-point of the estimates) and if we use the USDA’s current 166 bpa yield estimate, we come up with 13.175 billion bushels of corn production, which is 700 million bushels less production than USDA’s current estimate.

Bottom line: There is still lots of uncertainty surrounding the actual number of acres of corn planted. Combine that with some forecasts of hotter and drier weather during pollination for some of the Corn Belt, and price volatility could remain high for the next month or so. In this kind of environment, locking in floors while retaining upside price potential is a good marketing strategy. Contact your account representative from The Andersons to design a marketing plan that provides you with this flexibility.