USDA Quarterly Stocks & Acreage Report


Today was all about USDA but this week has been pretty beneficial for our markets even before this report. I am mostly glad to have this report behind us so we do not have to worry about a big negative surprise from USDA. We have July supply and demand coming out on July 12th where they will use this new acreage number and also update yield.

Acreage
USDA estimated corn acreage at almost 1 million acres less than the market expected and only about 1.5 million more than on the prospective planting report. Soybean acres were estimated at just below March intentions and were also over 1 million acres less than what the market expected. Before this report, there were some big acreage numbers thrown around. If any of those had been accurate, dropping a few bushels off yield would not have been such a big deal. Now that we have these numbers, the weather is going to be exponentially more important. Get ready for an even wilder summer. We cannot afford any loss now and the weather forecast does not look good for the crops in the western belt.

Stocks
Some analysts were worried about the surprise coming from grain stocks from USDA. There were some fears that wheat feeding had displaced enough corn that stocks may have come in higher than expected but those fears were unfounded. Grain stocks in corn, wheat and beans all came in just below expectations. Corn was about 1 billion bushels less than last year and beans were almost half of last year. This is a huge reminder to the market that we do not have any room for error this year.

Other Information
In addition to the USDA data we got today, this week has seen other bullish news. Weather models are drying again for the western corn belt and the heat is building. Condition ratings did not improve this week like the market seemed to anticipate after all the rain over the weekend. Conditions did not improve because the areas that got the rains are the areas that have been getting the rain all along. At some point, there may be some areas with too much rain and still some areas with none. The market will be watching these even closer now. Harvested acres will be debated now with how bad things are in the western corn belt.

Weather in Brazil is also bullish again. There is a significant frost risk to the late planted second crop corn. USDA has up until now failed to reduce that crop by as much as most analysts had. Every bushel that Brazil loses will have to come from the US in the form of higher exports. We do not have a reserve anywhere in the world. USDA is going to have to adjust this on the July supply and demand.

China is buying US beans for new crop. It is a bit early for them to be this aggressive for new crop. They took advantage of the price drop. USDA is projecting razor thin carryouts and they might even be optimistic. Even at the last market top, we were not slowing any demand. If the market does need to ration some supply, it is going to have to go higher. Weather will write the story.

Wheat
USDA did not change much on wheat, but wheat cannot let corn run too high for fear of getting too much fed. There is still a disaster unfolding in spring wheat as Minneapolis wheat is over $8. Chicago wheat has found a harvest floor and should track closer to corn now. The rains that are benefiting the corn and beans in the eastern belt are not helping the ripe wheat crop. Despite all the feeding, Southeastern flour mills have enough wheat bought through July now so milling basis has weakened finally. We are still at very historic levels for harvest though so do not be discouraged if you have to sell some. If you can hold wheat, fall delivery wheat will be exceptionally hard to originate and basis may trade premium to rail replacement.

If you need to move your wheat before corn, you need to be making plans now. If you can hold until after corn harvest, be patient. Basis will improve.

Cotton
Cotton acres did not look bearish relative to expectations but the market reacted to something. I think the stated “average estimate” may have been incorrect and the market saw more acres than they were actually expecting. Regardless, with uptick in economic activity and the deluges of rain in the Delta, I am still looking for cotton to reach 90 cents.