FORT COLLINS, Colo. (Reuters) - Market participants have been perplexed that U.S. farmers planned to plant the second-largest corn area in more than eight decades, with futures at 14-year lows and stockpiles expanding to eye-popping volumes.
Most historical data supports the idea that American farmers love to plant corn even in trying times. But 2020 offered up enough roadblocks for producers to drastically change plans over the last few months, and the latest acreage number published on Tuesday makes the new-crop balance sheet a little more interesting.
The U.S. Department of Agriculture’s second round of farmer surveys for crop area and corn plantings came in at 92 million acres, well below the pre-report range of guesses and down 5 million acres from the March report.
That was by far the biggest change in corn acres from March to June since Freedom to Farm in 1996. Within the last 40 years, only 1983 featured a larger change between the two surveys as corn plantings dropped nearly 14%.
Prior to the report, analysts saw U.S. corn plantings at 95.2 million acres on the expectation that wet weather had prevented some planting in the Dakotas and Delta states. That surely happened, but weather was not the only factor in the lower acres.
Chicago futures soared after the data was released on Tuesday, with December corn rising 4.7% on the day. The most-active contract tied Nov. 28, 2018 for the largest daily percentage gain in exactly three years, though December futures remain lower than in prior years.
WHERE ARE THE ACRES?
Analysts over-guessed most major acreage estimates, with their corn miss the most prominent. They were too high on soybean and wheat acres by 1% apiece. Their cotton guess was 8% too high and they over-cooked sorghum by nearly 5%.
All these lower acreage numbers had people wondering what happened to the acres and to which crop or crops they were reallocated. But the acres were not planted at all.
USDA reported principal crop planted acres at 311.9 million, down 2.3% from the March figure. Aside from last year’s total of 302.6 million, that would be by far the smallest principal crop acreage since at least 1993. Between 2015 and 2018, principal crop acres were around 318 million to 319 million.
That 2.3% drop is larger than the March-to-June decline from last year of 1.9%, despite 2019 being a much more difficult planting season. That likely speaks to the influence of prices, as farmers may be less apt to push hard on planting in an extremely low-price environment.
Poor profitability prospects could also have influenced the shift in corn harvested percentage, which in the acreage report, is a surveyed number. At 91.3%, that fraction is 1 percentage point lower than the one suggested by USDA’s June supply and demand report.
It is important to remember that the March area survey was largely completed before the coronavirus pandemic hit the markets hard mid-month, so the acreage estimates from three months ago did not reflect those impacts.
Prior to Tuesday, it was a forgone conclusion that the United States in 2020 would produce its largest corn crop on record, topping the 15.148 billion bushels harvested in 2016. But the area shift between March and June no longer guarantees that result.
USDA’s production estimate from its June supply and demand report is 15.995 billion bushels. Plugging in the new harvested area cuts exactly 1 billion bushels off the crop, assuming the same trend-line yield of 178.5 bushels per acre.
Assuming no changes to Tuesday’s area numbers, the U.S. corn crop will be record large if the yield reaches 180.3 bushels per acre. That is 3.7 bushels above 2017’s high.
Many market analysts this year are already betting on 180 bushels per acre or larger, but that prediction may be challenged by the next couple weeks of weather. Forecasts suggest that the first half of July is likely to be warmer than normal across the entire Corn Belt, and many of the major growing areas may observe below normal rainfall.
The shockingly low number of corn acres stole the show on Tuesday as far as the futures market was concerned, but June 1 stocks were much heavier than traders expected.
USDA showed June 1 corn stocks at 5.224 billion bushels, topping the trade range of guesses and landing some 273 million bushels above the average estimate. That was analysts’ worst miss on June stocks in either direction since 2011.
USDA will issue its July supply and demand report a week from Friday, and it will be important to look at how the 2019-20 demand numbers change for U.S. corn. Exports and corn use for ethanol are relatively trackable numbers, but feed usage and residual demand, which combine into one term, is more difficult to predict.
Feed and residual use is predicted at 5.7 billion bushels in 2019-20. That would be a 12-year high and up 5% on the year. But there may be room for this number to come down.
The U.S. hog herd between March 1 and June 1 was between 4% and 5% larger than the same period a year ago, but the number of cattle on feed was down by 5% at most. Cattle placements in feedlots were down 22% and 23% on the year on May 1 and April 1, respectively.
In June, USDA placed U.S. corn ending stocks for the 2019-20 marketing year that ends Aug. 31 at 2.1 billion bushels. The 2020-21 estimate, which includes the current corn crop, is 3.323 billion bushels.
Even when considering the stocks miss, the sharp change in acres between March and June should pull 2020-21 ending stock projections below 3 billion bushels for now. The new peg will likely remain a 33-year high, but the forward supply outlook has suddenly become a bit more manageable.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Richard Pullin
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