USDA Prospective Plantings Report – March 31, 2021

This report was a gift from USDA. There was additional nervousness going into this report after the weakness this week leading up to the report. There was no one source we could point to explaining the weakness. The weather is improving a bit in Brazil and Argentina, the dollar is stronger and China is slowing down bean purchases in anticipation of the South American harvest. None of those things were new this week. One thing I think contributed to the selloff was the collapse of a little known hedge fund that had an estimated $30 billion of positions that had to be unwound. The details are not important but when they could not make their margin calls on positions they had, all their positions had to be liquidated. Some of the banks they were trading with got understandably nervous and have pulled the leash in on all their clients which contributed to a risk off attitude this week. In volatile markets like this, we need to be mindful of things coming at us from all directions. There is a lot of money coming into the agriculture markets and that comes with risk as well as reward.

I think the acreage estimates are wrong. I am entitled to my opinion just as USDA is entitled to the data they collect. There are a million explanations for why the acreage estimates are so low ranging from innocent explanations of data analysis to conspiracy theories. We do not need to get bogged down in why, let us instead look forward. The market sees right now that is too few acres. It’s job now is twofold: encourage more acres and slow demand. That is what limit up is trying to do. Expenses are up and to encourage more acres, the market must go up too. Stocks came in within expectations so there was not a shock there, but we need to slow demand.

Intending to plant and actually planted are two very different things. A crop planted is also not a guarantee of the crop harvested. The market needs all these acres and more planted and big yields just to maintain the balance sheet. Barring something catastrophic happening to demand, it is going to take multiple years to start adding back a buffer to the balance sheet. My point here is that we have a while to go before the crop is planted and even longer before it is harvested. Any sign of trouble or any threat to yield is going to be met with lots of volatility.

The new crop targets I have been preaching at $5 corn and $12 beans looked out of reach yesterday. Now they are right back in the crosshairs. Get some orders working there. Nothing wrong with covering costs and hopefully locking in a little profit. If you have been waiting to make another old crop sale and been shell shocked this week, nothing wrong with making some sales here. There should be some additional upside but a bird in hand…

The report was not as friendly to wheat as it was to corn and beans. Stocks were a bit higher than expected and acres were too. Wheat is rallying just to try to keep enough premium above corn to keep it from all going into the feed channel. A lot of wheat can get gone quickly that way. In the Southeast where corn basis is so strong, wheat is going to make a better case to go into the feed. If you have wheat hedged, we can roll those hedges to corn if you want to sell feed wheat. Some of the flour mills have harvest covered so it will be up to the elevators that sold it to find the wheat. The flour mills that do not have their needs covered are going to have to be chasing it. New crop basis and fall basis should both be getting stronger to try to keep all the wheat from getting sucked into the feed channel and being gone.

The cotton acreage number has been getting smaller for weeks but that is not reflected on this report. Milo acres have taken a lot of cotton in Texas and other dry areas. The sniping back and forth between China and the US retailers happened at the wrong time for cotton acres but that should be helpful for price in the long run. The reason the market broke so hard was fear about what China’s retaliation would be. Retaliation is on the forefront of everyone’s mind after the last few years. With less acres and demand increasing, there is long term bullishness for cotton.