June 11, 2019 / 11:47 AM / 2 months ago

Column: What will USDA do with U.S. corn and soy production on Tuesday?

FORT COLLINS, Colo. (Reuters) - U.S. corn and soybean planting progress opened June at the slowest pace in at least 40 years, and now market participants are debating whether the U.S. government will change its production forecast on Tuesday although it does not typically do so in its June supply and demand report.

Farmer Dave Walton holds soybeans in Wilton, Iowa, U.S. May 22, 2019. REUTERS/Kia Johnson

In previous years with very slow planting and excessive moisture, the U.S. Department of Agriculture has used the June report to make adjustments to both area and yield. So there is precedent for such a change, and this year fits the bill as well as any. However, changes to corn output may be more likely than those to soybeans when the agency publishes its monthly supply and demand report Tuesday at 11 a.m. CDT (1600 GMT).

On average, market participants expect that USDA on Tuesday will reduce U.S. corn production by 779 million bushels, including a 3.6-bushel decline in yield. The soybean crop is seen down 27 million bushels with a half-a-bushel fall in yield.

USDA has no rules that say a production change is not allowed in June, or in any given month for that matter. There are also no rules that say the forecast must be changed in a certain month. Adjustments are never a guarantee.

The agency will change an outlook whenever the data suggests it is necessary. U.S. corn and soybean production is generally unchanged from May to June, at least in recent years, because there has not often been sufficient evidence to warrant any moves.

Data is always considered up until the last minute. In the case of Tuesday’s supply and demand report, USDA will evaluate domestic planting progress that will be published the previous afternoon, for example. USDA’s information flow is constant and any of its numbers are subject to change right up to publication, and the agency has always operated under this format.

WHEN ARE CHANGES TYPICALLY MADE?

USDA’s monthly world supply and demand estimates (WASDE) are finalized by the World Agricultural Outlook Board, and the first WASDE report covering a new marketing year is issued each May. At that time, corn area is taken from planting intentions published by USDA’s agriculture statistics branch in March and the yield is based on a weather-adjusted trend assuming normal mid-May planting progress and summer weather.

The soybean numbers are done the same way, minus the mid-May planting progress for yield. This of course assumes that no concrete evidence exists that would suggest tweaks are needed for either crop.

For corn and soybean area in its July report, USDA’s World Board has traditionally adopted the survey-based planting estimates that the National Agricultural Statistics Service (NASS) publishes at the end of June. After that, the next changes to area typically come in the October report based on adjustments made by NASS, unless data suggests otherwise at an earlier stage or if NASS conducts a special survey in between June and October.

The changes made in October are largely driven by registered acres collected by USDA’s Farm Service Agency (FSA). Acreage registration data is first published by the FSA in August and includes national- and state-level breakdowns of acres that were prevented from planting, which will be a large focus of the market this year. Although the data is published in August and September, NASS deems the FSA data sufficiently complete by October, which is why the changes are usually made at that time.

The first adjustment to corn and soybean yield typically comes in August just after NASS has completed its first round of surveys, which have included farmer feedback as well as objective measurements. NASS does this in each following month except for December until yield is considered “final” in January.

However, USDA announced back in March that NASS would drop its August objective yield measurements for corn and soybeans going forward. That means this August, the NASS yields will be based on farmer surveys and satellite imagery. The objective yield assessments will begin in September.

PAST ADJUSTMENTS

As of June 9, NASS estimated U.S. corn planting progress at 83%, up from 67% a week earlier, which remains record slow. On average over the last five years, corn planting reaches 95% complete on June 1.

As of mid-May, about 38% of the corn crop was planted, some 35 percentage points below average and just about the slowest in records back to 1980. This would warrant a change in yield based on USDA’s criteria.

Since 1993, USDA has changed U.S. corn yield in the June WASDE five times: 1995, 2002, 2008, 2009 and 2013. All those changes were reductions ranging from 1.5 bushels per acre in 2013 to 5.9 bpa in 1995. The footnotes of the June WASDE U.S. corn tables for those years all mentioned slow planting progress as the reason.

Since 1993, USDA has changed planted corn area in June four times and they were all reductions: 1995, 1996, 2002 and 2011. The magnitude ranged from 1 million acres in 2002 to 2 million acres in both 1995 and 1996. The footnotes cited excessive moisture in the Midwest for the first three years and delayed planting progress in the Eastern Corn Belt and Northern Plains in 2011.

Neither yield nor area have been adjusted on the U.S. soybean balance sheet in the June WASDE since 2002. USDA increased plantings that year by half a million acres to reflect wet weather in the Eastern Corn Belt. The agency also added 1.5 million acres in 1996 to reflect larger soybean plantings because of wet weather.

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

Editing by Matthew Lewis

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