Corn acreage was estimated at 97 million which was the second highest since 1936 and well above even the highest trade guesses. Now keep in mind, these surveys came back late Feb through early March and the whole world has changed since then. Soybean acreage was estimated at 83.5 million acres which was well below trade expectations. Wheat acreage was the lowest since 1919. Cotton was well above expectations. The real story today was on stocks as the acreage data although surprising was already obsolete.
Corn stocks were estimated 172 million bushels below what the market was expecting. This was the second largest shortfall from expectations ever. This is USDA correcting for last year’s yield estimates and the most tragic thing about this is it came at a time when it was completely overshadowed by all the other crap we are fighting. One month ago, a 172 million bushel shortfall would have drastically changed the market. Now, the market fears we have lost so much ethanol demand that it is a drop in the bucket. China is buying US corn and feed usage is up. We are finally getting all the things we needed, but ethanol is 40% of demand so the unknowns in that industry are overshadowing it all.
Bean stocks came in close to expectations. South America lost the top end of their crop. Demand is growing in China as they try to repopulate and the loss of DDGs domestically is bullish for meal demand. The question here is how much of the acres soybeans can pick up. Soybeans have a very bright outlook fundamentally.
The market is trying to discourage corn and cotton acres and encourage beans. However, the whole world is currently going over a waterfall. We do not know which industries are going to survive the fall and get back to full capacity quickly and which ones are going to take a while. The market is doing its best to try to give an accurate picture of the future but we have never been through something like this before. Do not ignore market signals, but I also do not recommend putting all eggs in one basket. Use agronomics first. If you can swap some acres out of corn and cotton without costing yourself more money, do it. But I do not think we need to go with all of any one thing. Switch acres on the margins, not the whole farm.
Scale in old crop sales on any positive day. This report was our best chance to correct last year’s balance sheet and we finally got validation on last year’s yield. Unfortunately, it came in the face of chaos. Now we have lost the demand and we are about to start planting new crop. The markets seem to have most of this negativity priced in, but with new crop coming will have little impetus for a sustained rally higher in the near term. On new crop, the market will be watching weather and any move toward $3.70-3.80 dec should be sold.
Basis keeps getting stronger on beans. If you need to move beans, do not sell any posted basis levels. Scale in sales to reward the market. Beans have had an impressive recovery so far. We think beans will make an attempt at $9 on old crop, but you need to be scaling in some sales if you have cash flow requirements coming up soon. We could have a setback due to outside markets. The virus is like having a monster loose, we do not know where it is going to pop up and affect us. Be patient on new crop.
Wheat has better fundamentals than even beans. We have the lowest acres since 1919. Importing countries are trying to secure more inventory and some exporting countries are limiting exports to combat local food inflation. Russia has some significant dryness concerns as the crop comes out of dormancy. If you need to move wheat at harvest, be getting basis locked in now! The board is going to try to make a run at $6, but be scaling in sales.
Cotton acres were well above expectations but dismissed quickly by the market. If we get even close to that many acres planted, it will be grown for the insurance and government payment. Supply side fundamentals do not matter on cotton until we get a clearer picture on the virus and economic recovery. Nothing to do on new crop cotton right now.