CHICAGO (Reuters) - For the second time in less than two months, overly aggressive market expectations for the U.S. corn crop tanked Chicago corn futures on Monday when the U.S. Department of Agriculture published its latest round of reports.
Analysts did not think it was possible for U.S. farmers to have planted as many acres as were reported on Monday as excessive spring rains led to the most delayed corn planting season perhaps ever. But data has been increasingly supportive of a higher corn acreage than everybody thought.
If market participants do not reframe their approach to this year’s unique U.S. growing season and at least remain open to the possibility of larger production, all subsequent USDA reports are likely to be super bearish and will continue to suppress corn futures .
USDA’s National Agricultural Statistics Service found an unusually large number of unplanted acres during its standard June survey, prompting the agency to resurvey 14 major producing states during July.
The results from the resurvey, along with satellite imagery and acreage data from the Farm Service Agency (FSA), informed the new corn planted area number of 90 million acres. Market analysts had been expecting plantings at 88 million with a high-end guess of 89.8 million.
Corn acres harvested for grain, which are more important to production than the actual planted area, came in at 82 million acres, also slightly above the high end of the trade range.
Interestingly, the predicted portion of corn acres being harvested for grain is nearly identical to what the NASS June report suggested at 91.1%. This number is based on what farmers reported as corn’s intended use in the surveys.
A lot of attention was paid on Monday to FSA’s record-high number of corn acres that were prevented from planting. Prevented planting (PP) coverage protects U.S. farmers if they are unable to plant an insured crop by a certain date.
PP corn acres for 2019 came in at 11.2 million, well above the previous high of 3.6 million in 2013. The fact that corn PP hit a new record this year is hardly surprising, but there are some incorrect assumptions on how this number should be interpreted.
One popular theory is that with corn plantings estimated at 90 million acres with 11.2 million acres of corn PP, actual intentions were 101.2 million acres. Not only is this a faulty assumption but it is futile since PP acres and planted acres do not historically demonstrate a one-to-one relationship.
Part of the reason for this is that acres can be swapped around. For example, a farmer can decide to plant corn where he or she originally intended to plant soybeans, or vice versa. This is how the number of PP acres a farmer claims might suggest an artificially large acreage decline of a certain crop on that farm.
PP acres can also be planted later with another crop, meaning that some of the 19.3 million acres of total PP-eligible cropland could be harvested for grain. That would reduce the PP payment to that farmer but given the extreme delays and other incentives this year, many may have been motivated to do this.
Another issue is that farmers’ planting intentions are constantly changing for several reasons, so it is not logical to add 11.2 million acres to a fixed planting estimate.
Normally, NASS uses registered acreage data collected by FSA for the first time in October, when the agency typically deems that data sufficiently complete. But because of this year’s unique situation and the need for additional information, NASS used acreage registrations to guide its latest area forecast.
On Monday, FSA registrations suggested 85.9 million planted acres of corn. Some market participants felt that this information proved that NASS is too high at 90 million acres.
But NASS explains this on the front of Monday’s Crop Production report. The NASS estimates are always larger than FSA’s certified acres because not all producers participate in USDA programs. Also, the data is historically incomplete in early August since it is reported to FSA over an extended period with varying due dates across the country.
For example, in August 2013, certified corn acres reported by FSA totaled 88.77 million and the final number reported for that crop year in January 2014 reached 92.4 million. But the official NASS planted corn area for 2013 stands at 95.4 million acres.
It is also important to recognize that the steep drop in soybean acres made room for more corn acres. NASS projects 2019 soybean plantings at 76.7 million acres, down 12.5 million on the year and the smallest bean acreage since 2011. Monday’s number was drastically lower than the trade average guess of 81 million acres and below the lowest estimate of 78 million.
Combined 2019 corn and soybean plantings at 166.7 million acres are down 6.5% from last year’s 178.3 million. That figure is also down 5 million acres from June 2019 and down 10.7 million from the March 2019 peg.
Despite the hardships of this year’s planting seasons, countless farmers have reported that the second round of U.S. government trade aid, which was partially revealed for the first time in May, incentivized them to plant in sometimes less-than-ideal conditions as the payments did not originally intend to cover unplanted acres.
While there is a chance that fewer corn acres and/or lower yields are eventually realized, being overly set on that outcome and ignoring any evidence to the contrary will probably create more destruction in the futures market in the coming weeks and months.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Lisa Shumaker