USDA reports offer plenty of contradictions, uncertainties
Some numbers in recent reports were just not believable.
There was a lot of significance to last week. First, we wrapped up the month of March, which was also the end of the first quarter of 2020. In addition, the U.S. Department of Agriculture released what is usually one of the most important reports of the year (Prospective Plantings) and one that allows us to visually see what the first supply and demand tables could look like for 2020.
The month of March was not kind to the markets. A breakdown for the month of March: May Minneapolis wheat was up 11.75 cents, September Minneapolis wheat was up 10.5 cents, May Chicago wheat was up 43.75 cents and May Kansas City wheat was up 39.75 cents. May corn was down 27.75 cents while December was down 19.5 cents. May soybeans were down 6.75 cents while November. soybeans were down 30.75 cents. May soybean meal was up $15.90. May canola was up $12.50, April live cattle was down $5.75 and April feeders were down $10.775. In the outside markets, crude oil was down $20.65, gold was up $28.00, the dollar was up 0.150 of a cent, and the Dow was down 3,250 points.
For the first quarter of the year, May Minneapolis wheat was down 5%, May Chicago wheat was up 1%, May Kansas City wheat was unchanged, and May corn was down 14%. May soybeans were down 9%, May soybean meal was up 4%, May canola was down 4%, April live cattle was down 20%, April feeders were down 17%, crude oil was down 66%, gold was up 4%, the dollar was up 4%, and the Dow was down 23%.
USDA’s reports brought a mixed bag to the trade with some of the numbers being friendly while others were just not believable. But these are the numbers we have to run with as they will be used for the first supply and demand estimates for the 2020 crop year.
Both the Quarterly Grain Stocks estimate and Acreage Estimate were friendly wheat. To start, old crop stocks were cut more than expected for wheat. Stocks came in at 1.4 billion bushels, which was 20 million bushels lower than expected and 181 million bushels lower than last year. This will force USDA to either reduce the 2019 crop production or increase demand.
On the acreage side, wheat acreage came in at the lowest level in history. Wheat acreage is expected to drop 1% from last year to 44.66 million. Winter wheat acreage is expected to drop 1% to 30.78 million. Other spring wheat acreage is also down 1% to 12.59 million (hard red: 11.9 and white 0.69). Durum acreage is expected to drop 4% to 1.29 million. As for North Dakota, spring wheat acreage is expected to drop 9% to 6.1 million and durum acreage is expected to be at record lows, down 11% at 640,000 acres.
For corn, one report was friendly and the other bearish (and hard to believe). The stocks estimate was friendly corn, as it came in showing a lot less corn in the bins than expected. Stocks were estimated at 7.95 billion bushels, 172 million lower than expected and 660 million lower than last year. This will lead to USDA to make adjustments in corn’s supply and demand table. Like wheat, either the crop was not there (which would result in a lowering of yield and/or acreage for 2019) or demand has been better than expected (feed). The trouble with this report is that it was as of March 1. Since that time, ethanol production has taken a huge hit, with 36-plus plants idling and another 40 plants running at reduced pace. So, as friendly as the stocks estimate was, it will likely be erased by the drop in ethanol production, but at least stocks should not increase for 2019.
Corn acreage did not come in at a record, but close. Corn acreage was estimated at 96.99 million, 2.7 million higher than expected, 300,000 higher than the Ag Outlook Forum estimated, and 7.3 million higher than last year. It really does seem unlikely that the U.S. could/will plant that much corn, especially after the pull back the past two weeks. But this survey was done in late February and early March before the pullback. Also, one has to remember, this is intended acreage to plant, so it is likely there are prevented planting acres added into the hope-to-get-planted category. But the numbers do bring in a few questions, like will the fringe areas really add that much more corn acreage, and will producers really be willing to plant over 3 million acres of corn on corn? But we do know that the 2020 supply and demand tables are not going to look pretty as corn ending stocks for 2020 will swell to over 3 billion bushels. There is nothing friendly about that.
The reports brought a mix of news for soybeans. The stocks estimate was neutral, coming in at 2.25 billion bushels, which was 12 million above expectations but 474 million lower than last year. It is unlikely USDA will make any adjustments to the soybean supply and demand table, and if they do, it would likely be a small increase to crush. On the acreage side, the report was friendly coming in at 83.5 million, 1.4 million lower than expected, 1.5 million lower than the Ag Outlook projected, and 7.4 million above last year. This estimate is maybe a little light from reality, but again, we really won’t know until June. It does mean soybeans can acquire 2 million acres from corn and still not see much of an impact on price. Normally soybeans would have to buy those acres away from corn, but that doesn’t appear to be the case this year. Producers might just be willing to switch the acres.
USDA’s nationwide crop progress report has not officially resumed. Some states are reporting crop conditions on a weekly basis while others reported their conditions for the month of March. The states reported the following conditions Monday, March 30: Colorado: 51% good/excellent, -4%; Kansas: 50% good/excellent, +2%; Oklahoma: 70% good/excellent, -7%; Texas: 56% good/excellent, +7%; Montana: 50% good/excellent +13%; and South Dakota: 85% good/excellent +12%. Colorado's crop is 1% in joint versus 0% last week and 0% average. Kansas's crop is 3% jointed versus 0% last week and 0% average. Oklahoma's crop was 44% jointed versus 27% last week and 47% average, and Texas's crop is 28% headed versus 27% last week, and 9% for the five-year average.
Other crop progress items to note: North Dakota's corn harvest progress was estimated at 75% complete as of Sunday, March 29, versus 61% at the end of February; Texas has 50% of its corn planted versus 36% last week and 41% average. Emergence is at 24% versus 0% last week and 15% average.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”