If you needed to describe the May 9 USDA monthly S&D Report is a single word, it would be “polar.” There were two key adjustments contained in Friday’s release. One in old crop, and one in new crop. One was positive to price; the other was negative. The key question for corn growers in all of this is: how does the USDA Report impact my marketing plan moving forward?
The good news came first. By moving 2013 crop corn export estimates to 1.9 billion bushels (up from the 1.75 billion bushels in April’s report), the analysts raised corn demand for the fourth consecutive month. The USDA now estimates the total demand for 2013 crop corn at 13.635 billion bushels, and has lowered its anticipated carryout to 1.146 billion bushels. This puts the stocks to use ratio on last year’s record large corn crop at a respectably tight 8.4%.
The bad news for the corn market came in the second section of the report. By publishing a yield estimate for this year’s corn crop of 165.3bu/ac, even with 2014’s smaller planting intentions of 91.7 million acres, the USDA is projecting an even bigger corn crop in 2014 than last year’s record of 13.925 billion bushels by estimating 2014’s production at 13.935 billion.
Any upside which the futures market found in the old crop estimates was quickly overwhelmed by the stunning size of the 2014 crop projections, and the markets have eased lower ever since the report’s release.
The obvious dichotomy of the report is that the old crop numbers are supportive of price because they show a tightening in old crop supply. This is based on measurable figures (such as export sales) and a known crop size. At this point, all of the new crop figures are estimates. If it is reasonable to say that if half of North America’s corn seed is still in the bag, and only a fraction of the crop has emerged from the ground, then how do we assume that we have record yields? The reality is that although the market does not yet know if we will set new yield records in 2014, we also have no reason to assume that we won’t.
As a producer, the most critical thing to keep in mind is that markets trade the crop ahead, and not the crop behind. Even though 2012 was a very small grain crop due to that summer’s drought, the markets traded lower through the summer of 2013 because the crop developing in the field was a big one. We often joke that it is a “futures” market because we are trading the unknown future, and not that which is already known. Going forward, the volatility in the corn market will be the result of events with regards to the crop in the field. Don’t let old crop statistics cloud your decision making.