June USDA Report – June 11, 2019

Everyone had been preparing for a bearish USDA report today as most people thought USDA may be very cautious to adjust acreage or yield. As a result of that caution, the market did not react very strongly to what many felt was a fairly bullish planting progress and condition rating report Monday after the close. Corn was reported at 83% planted, which was close to market expectations but we are now past the insurance dates in all of the corn belt. Notable states are Ohio at only 50% (5 year average of 96) and Indiana at only 67% (5 yr avg of 98). These states are where most of our corn comes from in the Southeast, so we can expect a very strong basis. Lots of progress has been made over the last week as we went from 67% planted to 83% planted, but the forecasts have been trending back wetter and it is now very very late to plant corn. The crop was rated at only 59% good or excellent. There has been very little correlation over the years between the first condition ratings and final yield, but that is still a very low rating to start (last year the first rating was 77% good/excellent). After this bullish report, the market opened lower and traded lower all night right up until the supply and demand report that came out at 12 today.

On the June supply and demand report, the market was very surprised that USDA lowered yield 10 bushels from 176 last month to 166 this month. The market has been debating two yield numbers for the past several weeks. What they think the crop actually is, and what they think USDA would show us in June. Not many analysts expected USDA to drop this much in one report. The market was also shocked by USDA dropping acreage 3 million acres. With approximately 15 million acres left to plant on June 11th, not many disagree we have probably lost at least 3 million acres, but not many expected USDA to drop this much this early. Some see it as their attempt to ease the market into the next adjustment. We will get a planted acreage estimate on 6/28. Typically that is the “final” acreage estimate for the summer, but this year we are going to be debating acreage for the whole marketing year.

After how much shock this these adjustments brought to the market, it begs the question why were we not up more today. The charts look fantastic now that we did not fill the gap on the last push lower. The technicals look more bullish now and the fundamentals seem to agree. I think the market is watching the #plant19 pictures from all over the corn belt. Farmers have not stopped planting corn despite the recommendations from so many agronomists and university researchers. The next rains that push through may put the final nail in the coffin for planting. The market also has a hard time shaking the old adage “rain makes grain.” Several analysts had commented early this winter that markets have a harder time estimating yield and rationing demand in wet years than in drought years. The corn that was planted on time has faced too much cool weather and been waterlogged its entire life. The corn planted late may not have enough time to reach full maturity. This market still has a lot of work to do.

We have gotten a break from the heat and most people in the Southeast have gotten good rains to make us feel better about our own crop now. Basis is going to be strong so I would advise against making any basis sales. But we need to continue to scale in sales. When the market pushes back over $4.50, we need to protect profit. We know the story in the Midwest, but that is not the only thing that affects our market. We think corn will still go higher, but there are no guarantees of that. It could be something we do not expect that could take this rally away from us like some macro economic problem like a recession caused by the trade wars. Mexico is gearing up to be able to import corn from South America. We are living in a very volatile world and we need to be managing risk. We need to sell corn on rallies and buy calls on pullbacks.

USDA did not adjust soybean yield despite dropping corn yield 10 bushels. That gave us a bearish surprise on carryout numbers on beans but I think the market was able to discount it due to the yield being unchanged. Beans also found strength from corn. Beans do not have as much yield loss being planted this late as corn, but they still have some yield loss. As the weather models turn wetter over the long term forecasts, whatever rallies we get in beans back above $9 need to be sold. We have a lot of upside potential in corn, but I do not think that is shared by beans.

USDA was friendly to Chicago soft wheat but a bit negative to the hard wheat market. Chicago wheat will be content to follow corn for now. Rains in the Eastern belt continue to erode quality but overall wheat stocks are still comfortable in the world. Russia remains dry so that will need to be watched but they still have a large crop. Of the few acres of wheat we had planted, a lot had been cut before these last rains. However we have lost weight on the wheat that remained in the field. The question is how much. Wheat bids are starting out at an all time high and will get stronger.

No major changes on cotton domestically but world ending stocks was raised by trimming last years usage. US ending stocks are going to be burdensome unless we get a trade deal with China. Cotton needs to see progress on trade!!



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