Planting Progress and Price Forecast
Update for June 5th, 2019
Once again planted acres announced this week were lower than what the trade had been expecting. The USDA shows that 67% of the corn crop has now been planted, this is a 9% increase from a week ago but is far below the 5 year average of 96% by this date. At this time 28.5 million corn acres remain unplanted which has led some analysts to estimate that U.S. 2019 corn acres may total sub -80 million. It’s not unrealistic to believe that they could be correct when you study the chart below, notice that the only states that are not dealing with double digit delays are Texas, North Carolina, Tennessee, Kentucky and Pennsylvania while the big production states still are lagging far behind.
It’s very likely that any substantial USDA reductions to acreage totals will not surface until we get into the August report, once more detailed data is received from the FSA. Smaller adjustments to acreage totals could begin to be factored in this month and then again in July. Yield forecasting data from newly developed satellite imagery will also be watched and analyzed very carefully to assess the crop progress and yield potential throughout the summer.
The following article from Todd Hultman of DTN was circulating on a popular social media website this weekend. I found it interesting and included it for all of you that may not have seen the post:
On May 10, USDA estimated a 15.03-billion-bushel (bb) corn crop planted on 92.8 million acres, resulting in a higher ending corn stocks estimate of 2.485 bb for 2019-20, the most since the 1980s. The announcement sent December corn prices lower, but the market didn't put much faith in USDA's numbers, as report day finished with a 3/4-cent loss. We can now say those estimates are obsolete.
Rain has washed the chalkboard clean, and here on the last day of May, it's a good time to start fresh and sketch our own estimates of what might be possible for corn in 2019. Among the things we do know, USDA said 58% of corn was planted on May 26, the lowest progress in USDA's Crop Progress archive.
If we look for a similar year of slow planting, 1995 stands out. In that year, 56% of corn was planted as of May 21 and reached 97% planted by June 18. Modern planting equipment could speed up the process this year, if weather would cooperate. That is still a big "if."
The latest seven-day forecast shows rain across the Corn Belt, and many of the largest producing corn states need time to dry out. Here on the doorstep of June, estimating the number of corn acres that will get planted remains a difficult call. The next few weeks of weather could decide the difference between losing 6 million acres or more.
Before I jump into the estimate process, I want to thank DTN Contributing Analyst Joel Karlin for his new matrix of corn ending stocks possibilities, seen here: https://www.dtnpf.com/…
Karlin's matrix assumes 14.375 bb of U.S. corn demand in 2019-20, which I find reasonable, given the increased export competition we expect from Brazil and Argentina. The ending stocks estimates range from a couple hundred million bushels (mb) to 2.5 bb, depending on the variables you find reasonable.
The first estimate I offer is a scenario of minimal change. In other words, if the sun comes out next week, the angels sing and planting recovers better than expected in early or mid-June, I think it is reasonable that the U.S. will lose 6 million harvested acres of corn off of USDA's May estimate. I can be wrong, but the problems appear too pervasive and widespread to allow for less.
79.4 million harvested acres times the 20-year yield trend of 174.0 bushels per acre (bpa) equals a 13.82 bb corn crop. Borrowing Karlin's demand estimate of 14.375 bb puts ending U.S. corn stocks at 1.54 bb or 11% of annual use, down from USDA's estimate of 2.095 bb in 2018-19.
When looking at previous years when ending corn supplies fell near 11% of annual use, DTN's National Corn Index prices traded a wide range, -- between roughly $2.50 and $5.00 a bushel -- but the statistical correlation of the more likely cash price fell around $4.20 a bushel for this scenario of minimal change.
What if the problem turns out worse than described above? With 39 million acres of corn left to plant on May 26 -- and rain continuing to fall across the Corn Belt this week and probably early next week -- it is not unreasonable to anticipate a loss of more than 6 million acres. For comparison purposes, let's look at what a loss of 8 million harvested acres does to the bottom line.
You may have noticed I haven't talked about yield yet. In 1995, when the corn crop was planted late, the yield came in at 113.5 bpa, roughly 13% below trend. It is understandable that corn planted late, or in less than ideal circumstances, would suffer yield loss and it wouldn't be surprising to see that in 2019.
However, the question of yield is made more difficult by the fact that farmers aren't planting 1995 corn seeds in 2019. I asked DTN Crops Technology Editor Pam Smith and DTN Staff Reporter Emily Unglesbee how 2019 hybrids might compare to 1995 in these conditions. Both agreed that today's corn genetics should handle adverse conditions better than what we saw 30 years ago. Unglesbee pointed to the fact that traits offering weed control and insect control came after 1995. Smith explained, "We have much better planters that place seed better. We also have better hybrid placement and hybrids that respond to higher plant populations. Today's hybrids utilize nitrogen better and more common use of fungicides helps preserve yield."
Putting it all together, a scenario of losing 8 million harvested acres of corn with a modestly lower yield of 170 bpa, gives us a 13.16 bb crop. Sticking with Karlin's demand estimate above, this scenario brings ending U.S. corn stocks down to 878 mb or 6% of annual use.
A chart of historical cash corn prices indexed for inflation shows a price range of roughly $6 to $8 a bushel when ending corn stocks were at 6% of annual use. The reality in this scenario is that ending stocks may not actually get as low as 6% of annual use, as rising corn prices would start to ration demand.
The main point here is that a scenario of losing 8 million harvested acres plus some yield is an extremely bullish scenario that will also have an emotional component. Until more is known, shorts should be very cautious in this market.
Late in 2018, I advocated $3.80 a bushel as a reasonable target for cash corn prices around May of 2019, the typical time when seasonal peaks are made. Obviously, I didn't know at that time that this serious of a planting problem would emerge, or that DTN's National Corn Index would have closed at $4.09 on May 30. I am not comfortable talking about $6.00 corn, and it is not my intention to fuel a bullish frenzy or talk farmers out of taking good prices when offered. Given the situation we are in, we need to be aware of what corn prices could be facing. This is no time to nod off.
While we are very focused on the difficult decisions facing our U.S. farmers we must also remember another key component- our global competition. A well-known U.S. marketing advisor brought up a very important point this week that I believe everyone needs to consider when formulating their marketing plan: Producers in Brazil are just beginning to harvest another bumper corn harvest, the 2nd in a row and their prices are at profitable levels. “Think of the corn story from the Brazilian farmer’s perspective. Your second crop of corn is looking very good this year. Early yield checks are a new record on your farm and the price is the best in a year. If the U.S. strikes a deal with China, you lose your buyer.
How fast would you sell?
Will U.S. farmers be so bullish they get stuck holding their inventory while Brazilian farmers happily sell their crops?”
Grain traders from the U.S. are beginning to import corn from South America. These trading groups are concerned that with all of the planting delays around the U.S. there may be a shortage of corn available this fall and in addition corn prices out of SA are lower. Smithfield Foods has ordered 5 to 10 corn shipments from Brazil with expected delivery sometime between September and January. Reuters reports that Paraguay and Argentina are also shipping corn to the U.S. It has been nearly 7 years since the U.S. has imported a significant amount of Brazilian corn.
China is planning to follow through on their promise made earlier this year during a truce in the trade war to purchase 14 MMT of U.S. soybeans. Half of the soybeans remain to be shipped at this point but their decision to follow through on the commitment has surprised many. Reportedly they plan to stockpile the soybeans which experts assume means that they are planning for a long-term battle. Another trade concern has developed between the U.S. and another of our top trading partners, Mexico. President Trump has threatened to impose tariffs beginning next week if Mexico does not take immediate action to help stop the flow of illegal immigrants into the U.S. Trump wrote on Twitter, “Mexico is sending a big delegation to talk about the border. Problem is, they’ve been talking for 25 year, we want action, not talk. Otherwise, our companies and jobs are coming back to the USA!” The president of Mexico, Lopez Obrador, said Saturday that his country could tighten migration controls to calm and satisfy President Trump in an effort to avoid the use of tariffs. He also commented that he is expecting “good results” during the meetings planned for this week in Washington. Lopez Obrador also stated that they would not engage in any trade wars with the U.S. Estimates indicate that the pace of illegal border crossings into the U.S. is escalating. There were 99,000 people apprehended at the border during the month of April and preliminary results indicate that total was exceeded in May. (Wall Street Journal and SeekingAlpha)
The 7 day GFS model for June 4th through June 11th calls for as much as 4 inches of rainfall for portions of Illinois, Indiana, Missouri and the Tennessee Valley.
The 8-14 day forecast calls for slightly above-average precipitation totals to continue through June 17th.
