Usually, things don’t live up to their billing, but the U.S. Department of Agriculture's Prospective Plantings and Quarterly Grains Stocks estimates not only lived up to the hype, they shattered the glass ceiling.
RELATED STORY: Corn and and soybeans are still looking to buy acres
The markets were flat to lower leading up to the release of the reports on March 31. Nothing seemed to be able to move the markets over the past month. Improving weather conditions in both the U.S. and South America added to the selling pressure.
The U.S. has seen good rain blanket most of the Southern Plains and central to eastern Corn Belt. The rain has been enough to remove most of the drought stress in those areas. The rain has helped the winter wheat improve and has given most of the Corn Belt excellent soil moisture conditions for the start of the planting season. Couple the ideal conditions with early planting and you have the makings of a better than average crop.
The first surprise of the week came in the March 29 state Crop Progress reports. Although individual state Crop Progress reports were friendly, wheat continued to retreat. Traders were expecting to see another increase in winter wheat’s crop rating, but to everyone surprise, conditions did not improve as much as expected. Kansas was the best state showing a 5% increase in ratings, but the other states did not see improvement, with some even decreasing.
Rain did fall in much of Brazi, but not enough to cause much concern for harvest progress. The bigger problem in Brazil is COVID-19, as cases are spiking to the highest levels of the year and hospitals are overrun. It is also affecting the workforce to get the soybeans harvested and trucked to ports.
South America is making good progress, now that weather has improved. As of March 26, Brazil’s soybean harvest was reported at 67% complete versus 70% average. The first corn crop harvest was 59% complete versus 60% average, and the planting of the second corn crop was estimated at 96% complete versus 98% average. Argentina is estimating its corn harvest at 10% complete versus 14% average.
The planting report’s average trade estimate had been an eye opener. Instead of seeing a massive increase in soybean acreage, the average trade estimate had wheat acreage slightly lower than the Ag Outlook Forum estimate, corn acreage sharply higher than the Ag Outlook, and soybeans in line with the Ag Outlook. The expectation of early planting was expected to lead producers to plant more spring wheat and corn on the thought that producers will continue to plant more of the crop they are planting, especially if things are going well.
That would result in lower acreage of soybeans getting planted, and that is the crop that needs to increase acreage by 7 million to 8 million to make the supply and demand numbers work, at current rate of demand. Corn does not need to add more than 1 million to 2 million acres in 2021 as the supply and demand numbers for corn are not as tight as soybeans. Of course, both assumptions have yield coming in at trend, so any reduction in yield will make a big difference.
Going into the March 31 reports, the market was a bit on edge as most of the markets were teetering on collapse. The fundamentals had turned negative, as weather conditions had improved enough to alleviate short term concerns and export sales had slowed enough to question whether some markets would make USDA projections. Wheat had already slipped low enough to erase most if not all of its 2021 gains while corn and soybeans were on their way to breaking below major support. Traders were expecting soybeans to register its first lower monthly close in almost nine months.
That is until the acreage estimate was released.
Technical buying had the grains trading with gains March 30 into the morning of March 31. There was a bit of last-minute position squaring taking place ahead of the release of the reports, but overall, the market was setting itself up to maybe see a slight dead cat bounce on the expectation that the grains had already pulled a lot of premium news out of the market.
The Quarterly Grain Stocks estimate was neutral to negative wheat. Stocks came in at 1.314 billion bushels, 36 million bushels above expectations but 101 million bushels lower than last year. In all stocks were 7% lower than last year with on farm storage down 16% from last year while off farm storage was down 4%.
The plantings estimate was also slight negative wheat. All wheat acreage was estimated at 46.36 million acres, 1.4 million above expectations and 2 million above last year. Winter wheat acres were estimated at 33.1 million up 1.3 million from expectations and 1.1 million above USDA’s January estimate. Kansas reported acreage up 11% from last year while Oklahoma was up 1% and Texas up 12%. The big question, how did winter wheat acreage increase 1 million acres in this report?
Other spring wheat acreage was estimated at 11.7 million, 100,000 acres above expectations but 510,000 acres below last year. North Dakota producers are looking to plant 5.6 million acres of spring wheat versus 5.7 million last year, a 2% decline. Minnesota producers are looking to cut acres 3% while South Dakota is cutting acreage 3%. Spring wheat acreage will likely be lower in the June 30 Planted Acreage estimate.
Durum acreage is estimated at 1.5 million, 100,000 acres less than expected and 140,000 acres less than last year. North Dakota is cutting acreage 18% to 750,000 acres. The lack of incentive to plant durum over spring wheat resulted in producers not willing to take the chance on raising durum.
Corn had a very good day on March 31 as not only were the USDA reports friendly to corn, but so was the weekly ethanol report. That was the primer to help spur corn to post limit up gains by the close.
Last week’s ethanol production was estimated at 965,000 barrels per day, up 43,000 barrels from the previous week. Stocks were estimated at 21.11 million barrels, a drop of 695,000 barrels and the lowest level for stocks in 18 weeks. Gas demand has recovered to now be at 25-week highs. It seems consumers are starting to travel now that states have started to lift restrictions.
The Quarterly Grain Stocks estimate was also friendly corn. Stocks were estimated at 7.7 billion bushels, 66 million bushels less than expectations and 251 million bushels lower than last year. The 3% decline in stocks was due to a 9% decline in on farm storage and an 5% increase in off farm storage.
The plantings estimate was just straight-out bullish corn. Producers are expected to plant 91.1 million acres of corn this year, 2.1 million less than expected but 320,000 higher than last year. North Dakota producers are expected to plant 3.3 million acres of corn, up from 1.95 million last year, a 69% increase. South Dakota producers are looking at increasing acreage 13%. But the big states are looking at a less acreage. Illinois is down 4%, Indiana down 4%, Iowa down 3%, Nebraska down 3%, and Minnesota steady. The 2.1 million estimated decrease in acreage for corn lowers the potential ending stocks estimate for corn roughly 378 million bushels and stresses the need for as close to ideal growing conditions for 2021 to ensure trend line yields.
Just like corn, soybeans ended the session limit up on a surprisingly low soybean planted acreage estimate from USDA. USDA reported March 1 soybean stocks at 1.564 billion bushels, 30 million bushels more than the trade expected and 691 million bushels below last year. But the stocks report was largely ignored as everyone focused on the prospective planting numbers.
The Prospective Plantings report estimated soybean acres at 87.6 million which is 2.4 million lower than both the average trade estimate and the Ag Outlook estimate from February. However, 87.6 million acres would be a 4.5 million increase over last year as a majority of last year’s 10.2 million prevent plant acres will be able to be planted this year. The states with the biggest acreage increase by percentage are: North Dakota up 21.7% over last year, South Dakota up 15.2% and Wisconsin up 12.5%. Texas is expected to see a 33.3% drop in acres while Kansas is 1.1% lower and Oklahoma is 1.8% lower.
Just like corn, the 2.4 million drop in planted acres takes about 120 million bushels off the potential ending stocks estimate for soybeans. If you plug the acreage estimate into the February Ag Outlook Supply and Demand matrix, you get a soybean ending stocks estimate near 26 million bushels.
U.S. canola acres are estimated at 2.115 million, an increase of 290,000 acres over last year. U.S. sunflower acres are estimated at 1.216 million, down 503,000 acres from last year.
The question that this report left unanswered is where are the remaining 4 million acres? The total planted principal crop acres were around 319 million acres between 2015 and 2018 and it was expected that the acreage estimate would rebound to that level again this year, especially after the past two years of devastating prevent plant issues. In 2019 there were 20 million acres of prevent plant and in 2019 there were 10 million acres of prevent plant. But it was expected the dry conditions from late 2020 would allow most of those acres to be reclaimed and brought back into production. As it stands after the plantings estimate on March 31, the principal crop planted acreage estimate stands at 316.4million. That was 3 million acres shy of expectations and leaves the question, where are those acres?
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