If it was ever possible that everyone had complete knowledge of everything that was going on in a market, prices would never move. Since agricultural markets are built entirely on weather and politics, there is no way that this could ever occur, but what did we learn from today’s USDA Quarterly Stocks Report which will drive the price actions forward from here?
Although we have all known for quite some time that last summer’s drought substantially reduced the size of 2012’s grain production, there has been a significant amount of disagreement regarding how much grain was still in inventory as we progress through the tail end of the 2012 crop’s marketing year. Certainly the large inverses in both corn and soybean futures over the past year have shown that the farmer was a reluctant seller of the crop that he had in storage, and the Quarterly Stocks confirm that there is extremely little old crop left to be moved. With only 435 million bushels of soybeans in storage, we currently have 232 million bushels less inventory today, than we did on this date one year ago. Old crop corn stocks of 2.764 billion bushels are 380 million bushels lower than last year. If the market was only about old crop ending stocks, it would be in a very strong position.
The seeded acreage of the 2013 crop is critical to understanding the market’s potential going forward and although the farmers planting intentions last winter indicated that he intended to plant one of the biggest crops in history, a cool wet spring across most of the continent drew his capacity to plant such a crop into question. Today the USDA told us that the American farmer actually exceeded his planting intentions, and planted 97.379 million acres of corn (which is 97,000 acres more than the March Planting Intentions and 224,000 acres more than 2012’s record planting). Similarly, this morning’s report put 2013 soybean acreage at 77.728 million acres (which is 602,000 acres bigger than the March 31 Planting Intentions and 530,000 acres bigger than last year).
Although it is widely accepted that the 2013 corn crop was planted late, and that late planting generally results in lower yields, the rhetoric around this fact has drifted out into what would best be described as exaggeration (or “wishful thinking” by people who are long corn). On May 26, 2013 86% of the U.S. corn crop was planted compared to a five-year average of 90% planted on that date. “Yes,” planting progress was slower than expected this spring, and “yes,” that implies a lower yield potential, but at this point, that impact is likely only a couple of bushels per acre on the average yield. It is possible that part of the reason for slower planting progress was simply the unusually large number of acres being planted.
Since we started talking about the 2013 crop potential last December, we have known that it has had the potential to be an extremely large crop. The March 31 Planting Intentions Report re-enforced this, and today’s report confirmed that this year’s crop has THE POTENTIAL to be the biggest annual grain production ever. While this does not mean that we can’t have price rallies, the volume of production and the resulting stocks to use ratios, certainly limit the upside of those price moves. The surprise in today’s Report is not that the crop is big, but rather the extremes that they are pushing the acreages up to. The areas planted to corn, soybeans, and wheat all exceeded the spring intentions, and all exceeded last year’s crop size. It would not be advisable to sell into the hyper-activity of the future’s market immediately following today’s USDA release, but it is time to take a serious look at one’s marketing plan and re-adjust the price expectations based on what is now known about the 2013 crop, and be fairly proactive about making sales as the market rallies back in the weeks ahead.