The News & What it Means – Higher US Acreage Another Blow for Corn Prices

By John DePutter & Dave Milne – July 3, 2018

 

The news:

“US corn planted area for this year is estimated at 89.12 million acres, up from March intentions of 88.02 million but still down 1% from a year earlier, reported the USDA on Friday.”

– Syngenta website article, Jun 29, 2018

 

What it means:

Bad news for prices.

 

Heading into this spring, the general market consensus for corn was that after a couple of years of heavy US and global supplies, this would be the year that producer could look forward to potentially better returns.

 

Early optimism for prices

In late March, the USDA’s prospective plantings report seemed to confirm as much, as it pegged nationwide corn planted area at just over 88 million acres, down 2% or more than 2 million acres below a year earlier.

 

What’s more, in its first new-crop supply-demand estimates released in May, the USDA further made the case for higher prices by projecting 2018-19 corn ending stocks at 1.68 billion bu, down almost 23% or 500 million bu from the previous year.

 

A delayed start to planting, amid unusually cold Midwest weather in April, seemed to brighten the price possibilities as well.

 

Good weather and tariffs weigh

In late May, things changed.

 

Since the last week of May, corn futures (along with soybeans and wheat) have been battered by a combination of good weather and fears about a trade war with China.

 

With the market already down hard, the higher acreage estimate only makes things worse. Sure, it’s awfully hot in parts of the Corn Belt at a time when cooler is better, but beneficial rainfall over the weekend and generally good soil moisture in most areas are soothing any heat-related worries. On Monday, the USDA rated the corn crop at 76% good to excellent, down a single point from a week earlier but confirming the upside potential in the crop.

 

Given the strong condition ratings, it now seems a lock that the USDA’s current 2018 yield estimate of 174 bu/acre is too low. And with some industry estimates now trending up to 180 bu/acre or higher, the larger-than-expected planted area is going to make a big difference.

 

 

Indeed, even a more conservative yield estimate of 178 bu/acre would result in more than 500 million bu of additional production, which might then push new-crop (2018-19) ending stocks up to nearly 2 billion bu, little changed from the USDA’s old-crop ending stocks estimate of 2.1 billion in June.

 

Even though China is a small buyer of US corn, accounting only for about 0.2% of total US production, the tariff spat adds an additional bearish factor to the market. It creates uncertainty and instability across all US grain and oilseed markets.

 

Time running out for weather rally

Admittedly, there’s still time for the weather to rally the corn market higher. But with the calendar now flipped over to July and with 17% of the crop already into the pollination stage as of Sunday, a shift toward threatening weather has to happen fast. The window is starting to close. In another few short weeks, the crop will basically be made.

 

This is not to suggest that the corn market is headed a lot lower from here, especially after the losses incurred to date. However, prices won’t be as good as they were last spring. The marketing of your crop will be a challenge over the next few months.

 

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