CME: Grain Markets Await Plantings & Stocks Report

27 March 2012, at 12:50pm

US - Grain markets are anxiously looking at the upcoming USDA reports on plantings and grain stocks, write Steve Meyer and Len Steiner.

Trade continues to simultaneously asses the amount of rationing that will be needed through the end of August and the supply of new corn that will come to market this fall. Corn futures have been trading in a narrow range as both bulls and bears have been unable to make a convincing case so far. That could change on Friday (reports are issued at 7.30 am Chicago time).

A survey of analysts conducted by Dow Jones indicated that on average they expect total plantings of 94.7 million acres, 2.8 million acres or 3% more than a year ago and higher than the 2012 USDA outlook forum estimate. There is a significant spread in the analyst projections, with some pegging total corn plantings to be well over 95 million acres. Excellent weather in many areas has encouraged some producers to get an early start, a somewhat risky proposition given the risks of an April freeze. Still, early planted corn offers significant rewards as it reduces the risk of a yield loss in late July and early August. It also allows farmers to bring their crop to market a little early and benefit from the price spread between old and new crop. July corn is currently priced at $6.42/bushel while Sep stands at $5.79 and Dec is $5.55. Early plantings also could pull more acres away from beans although this supply could be marginal.

We have included the last supply/demand corn table that showed the preliminary (and unofficial) USDA estimates for the upcoming corn crop. Based on 94 million planted acres, USDA projected ending corn stocks for 2011/12 at 1.6 billion bushels or 12% of use, a dramatic improvement over the current year that projects ending stocks at just 800 million bushels or 6.3% of use. An additional million acres of plantings could yield an extra 150 million bushels of production. Should this kind of volume materialize, it could push prices below the $5 threshold. But it is a big if and market participants remain unconvinced.

On the production side, there is no guarantee that an early planting window will boost yields, it just reduces the chance that yields will collapse. Short term drought conditions in Northwest Iowa and points north and west bears watching. The increase in corn acres comes at a price. Some of the acres will be corn on corn, which reduces yields. Also, more acres will come from marginal land, which again tends to negatively affect yields. Expecting 164 bushels per acre (USDA adjusted trend) could prove to be illusory. On the demand side, trade continues to struggle with projected export demand (China), livestock and poultry use (they can’t eat just DDGs, can they?) and the ethanol blend wall. In the short term, however, the corn market will remain focused on planted acres for the new crop while March stocks could help (or further confuse) where we stand with old crop supplies. Either way, it is shaping up as another interesting Friday.