March 29, 2019 / 10:22 AM / 3 months ago

Column: USDA data may hold higher stakes for corn than soybeans

FORT COLLINS, Colo. (Reuters) - Corn might be best poised to lead any moves in Chicago-traded futures on Friday when the U.S. government publishes planting and stocks data, as the current supply situation for the crop is more precarious than that of soybeans.

Clouds hover above a corn field in Dubuque, Iowa, U.S., July 26, 2018. REUTERS/Joshua Lott

The U.S. Department of Agriculture will release its annual prospective plantings report along with quarterly grain stocks on Friday at noon EDT (1600 GMT), and these reports have historically produced large moves in CBOT markets.

It is no secret to traders that the U.S. soybean market is critically oversupplied. Top buyer China shunned the U.S. oilseed last year as a trade dispute escalated between the two countries, a tough break since U.S. farmers harvested their third-straight record crop last fall.

There is more hope for corn given that U.S. year-end supplies are set to fall to a three-year low. But U.S. corn ending stock projections for 2018-19 have crept upward over the past several months after a large harvest and tapering demand, both domestically and internationally.

Overseas demand for U.S. corn could dwindle even further in the coming months as South American crops are set to rebound from last year’s weather-ravaged harvest, and carryout estimates could climb further.

This could make it especially difficult for corn optimists to defend their positions if March 1 corn stocks come in larger than expected. A bearish planting number would not help the cause either, though it is far from final as there are still factors that could change that target.

CORN GUESSES

The average trade guess for U.S. corn stocks on March 1, which is halfway through the 2018-19 marketing year, is 8.335 billion bushels. This would be 6 percent lower than a year ago and the first March-to-March decline in corn inventory in six years.

But larger-than-expected stocks, if realized, would only add to ending stocks. USDA’s latest carryout estimate is 1.835 billion bushels and that does not provide much cushion before the 2 billion mark, which is a psychological level of heavy stocks that corn bulls would rather avoid.

Analysts predict 2019 corn plantings at 91.332 million acres, down from their 91.5 million-acre prediction from last month. USDA projected acreage at 92 million both last month and back in November.

U.S. farmers planted 89.1 million acres of corn in 2018, so the trade sees an addition of 2.2 million acres on the year. That is a far cry from earlier estimates that assumed corn could gain 4 million acres or more over last year.

Also, the range of guesses for corn plantings ahead of Friday’s report narrowed by nearly 2 million acres from the poll conducted one month ago. This flags the potential for a “group think” on corn acres, which could lead the market to the wrong conclusion.

One factor that has been cited as a potential lid on corn acres is higher input costs for corn relative to soybeans, including fertilizers. U.S. Gulf prices for nitrogen-based fertilizers commonly used for corn, urea and diammonium phosphate, hit three-year highs back in October. While it is not the only consideration to make, prices for both have come down significantly since then.

Another point to keep in mind is that USDA conducted the planting survey in the first two weeks of March, before the ongoing flooding in the Western Corn Belt escalated. This means there is a decent chance that Friday’s corn acreage could be too high if the recent weather proves bad enough to prevent corn planting on a broad scale.

LOTS OF SOYBEANS

In the soybean arena, market participants may find themselves wondering how much more bearish a scenario than the current one might possibly be presented on Friday. This is why it may be less likely for soybean futures to react sharply on their own to the numbers, especially if they are larger than predicted.

Analysts see 2019 soybean plantings falling to 86.17 million acres from 89.2 million in 2018. Last month, USDA projected plantings at 85 million acres, sharply up from its initial peg of 82.5 million back in November.

But there are fears that acres could be even higher as soybean economics versus corn have not been sufficiently unfavorable. Some 62 percent of voters in a Twitter poll I conducted last week said that soybean plantings would likely exceed 86 million. Some 27 percent saw soy acres exceeding 87.5 million.

The trade has overestimated soybean planting intentions in eight of the last 10 years, the exceptions being 2017 and 2014. The new-crop futures ratio of soybeans to corn was particularly elevated in those years, which is not really the case today.

Market analysts are certain that March 1, 2019, soybean stocks hit record levels. They hold an average guess of 2.683 billion bushels, some 27 percent bigger than the year-ago stocks, which were record-large.

This would represent a gain of 576 million bushels on the year, blowing away the previous largest March-to-March soy stock increase of 475 million bushels between 2004 and 2005.

This prediction is low-hanging fruit given that soybean exports are down at least 30 percent on the year owing primarily to the trade war and partially to reduced Chinese demand.

While such heavy stocks are certainly bearish, the market has already been processing for several months now an astronomically high 2018-19 ending stocks number of 900 million bushels or more, with a corresponding stocks-to-use ratio of more than 20 percent.

Unless stocks or acres are unexpectedly lower in a significant way, traders are unlikely to scrutinize differences of a few million bushels on the soy stocks this time around. Soybean futures may be more likely to tag along with corn on Friday, pending the outcome there.

The total mix of acres is a consideration that analysts must make when forming planting estimates. The combined trade guesses for corn and soybeans is 177.5 million acres, down from 178.3 million a year ago and a record-high 180.3 million two years ago.

Guesses for cotton and small grains, which include sorghum, barley, rice and oats, combine for 28.4 million acres, up 360,000 acres on the year. The 2019 trade estimates show acreage up on the year for all of those crops except for rice.

The opinions expressed here are those of the author, a market analyst for Reuters. 

Editing by Matthew Lewis

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