The News & What it Means – Wet Midwest Weather Muddies Supply-Demand Projections

By John DePutter & Dave Milne – June 4, 2019
The news:

“A Bloomberg survey of 10 traders and analysts indicates growers could file insurance claims for about 6 million corn acres they haven’t been able to sow, almost double the record in 2013.”

– Bloomberg, May 30, 2019

What it means:

If accurate, traders and analysts can scrap their preliminary supply-demand estimates for the 2019-20 crop year (if they haven’t already) and go back to the drawing board.

But let’s face it: There are still so many unknowns and uncertainties here that it’s difficult to envision just how the 2019 US corn crop may turn out or where prices might go from here.

If we assume 6 million corn acres are lost from original intentions of 92.8 million acres, that would slice final planted area to around 86.8 million. Based on the past three years, that would imply a final harvested area of just slightly below 80 million acres – potentially the smallest since 79.4 million acres were harvested in 2009. That’s the easy part.

Late planting pace has no comparable

But after that, things get more fuzzy – not the least of which is because we’re deep into unchartered territory in terms of how late planting may impact the final yield. As has already been widely reported, this year’s planting pace is the slowest since planting progress records were kept so there’s no real comparable in terms of previous years when seeding was also delayed.

As the graph from the American Farm Bureau here shows, the 2019 planting pace started out relatively in line with the wet years of 1993 and 1995, even performing better through week 18. However, the past number of weeks, this year’s progress has fallen further and further behind.

Note: Chart above not updated for Monday’s report.

Yield reductions likely

Research suggests yields in parts of the Midwest could drop between 40 and 60 bu/acre for any corn planted later than June 4. But as pointed out by a Purdue University extension specialist last week, that expected yield decline still doesn’t tell you what the final yield will be. For example, if the weather from here on out is fantastic, late-planted corn might still reach 200 bu/acre. But if it remains wet and cool or suddenly turns hot and dry, some corn may only yield half of that.

And as all farmers know, it’s not so much the actual planted or harvested area that largely determines a crop, but rather the yield.

In its latest Market Intel commentary, the American Farm Bureau declared: “We are looking at the biggest event for grain and oilseed markets since the drought of 2012.”

It’s hard to argue that point, with corn futures last week touching three-year highs.

Weather uncertain but leans wet, cool

For what they’re worth, current weather forecasts don’t offer much optimism for this year’s crop. The more immediate 6- to 10-day outlook shows the likelihood of below normal precipitation across portions of the northern and western Corn Belt, but the longer-range three-month forecast shows mostly above normal moisture for the bulk of the Midwest, along with below normal temperatures for much of the western Corn Belt.

Further uncertainty is coming from the US government’s trade battles and its latest farm financial aid package, which appears to be encouraging producers to plant something on soggy fields, rather than taking prevented planting insurance.

In its first official supply-demand estimates for 2019-20 last month, the USDA pegged this year’s average yield at 176 bu/acre, the crop at 15.03 billion bu and ending stocks at 2.48 billion bu. At this point, the only thing that perhaps seems assured is that all three numbers will end up different.

It’s not just about the supply or the demand…

Adding another layer of complexity to the situation is how the market responds, and when.

At the DePutter office, we recently released a supply-demand sheet laying a scenario for corn supplies, usage and ending stocks. But we are spending just as much time monitoring the corn market for subtle other indications such as whether the recent rally has already accounted for the weather damage. In addition, we are reviewing the impact on other crop markets.

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