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Another Volatile Price Day After the USDA Reports

19 April 2012
Iowa State University Extension

US - It seems like every time USDA released a corn or soybean report over the past few years the market reaction has been frantic. Futures prices have shifted substantially, sometimes to their limits, writes Chad Hart for Iowa State University.

The USDA reports recently released at the end of this March continued that trend. The market reaction was swift. But this time, it was favorable for Iowa’s crop producers.

Grain Stocks

Corn stocks on March 1, 2012 are computed at 6.01 billion bushels. This is down 8 percent from last year and below trade expectations. The trade was expecting around 6.15 billion bushels. The reported stocks for March are the lowest we have had since 2004. The continuing tightness in corn stocks helped old crop corn to a limit up day after the report release. Corn disappearance from Dec. 1, 2011 implies 3.64 billion bushels were used during the quarter, that’s up 3 per cent from last year. The corn grind for ethanol remained strong after the loss of the blenders tax credit. Based on ethanol production from Dec. 2011 to March 2012, corn use for ethanol was roughly 3.5 per cent higher this year.

Soybean stocks on March 1, 2012 are estimated at 1.37 billion bushels, up 10 percent from last year, but roughly in line with trade expectations. Quarterly soybean usage is estimated at 1.00 billion bushels, down 3 percent from last year. As Figure 1 shows, while corn stocks have worked their way tighter over the past two years, soybean stock levels are starting to build. But this building may be short lived. Soybean exports for the 2011 crop have been sizably lower than for the 2009 and 2010 crops. The reduction in exports has allowed stocks to build. But the outlook for 2012 is for exports to rebound to the 2009 and 2010 levels and stock levels to remain tight.

Figure 1. Corn and Soybean Stock Levels for the 2009-2011 Crop Years

Prospective Planting

Last year’s Prospective Plantings report matched up well with pre-trade expectations. This year’s report did not. Based on the numbers in the report, there is a lot of land coming back into crop production and acreage is shifting among the crops. Corn was the big gainer, but several other crops also gained ground. In total, 7.5 million acres are being brought back into production.

Over the last decade, only in 2003 and 2008 did we plant more acreage. North Dakota farmers are planning to catch for lost time as they plan to plant 4.1 million acres more than last year. Texas, Oklahoma, Montana, Minnesota, and Kansas are all projected to increase by at least 400,000 acres. Overall, 31 of the lower 48 states are projected to have increased crop area.

Corn plantings are expected to increase 3.94 million acres, the largest increase of any crop. But other crops are gaining as well. Hay acreage is up 1.7 million acres; winter wheat is up 1.06 million; durum wheat is up 0.85 million; and dry beans, sorghum, and canola are all up by over 400,000 acres. While some of this acreage is coming from prevented planting from last year, there are some crops that are losing land. Cotton looks to have the largest drop in planting, with a decrease of 1.58 million acres. Soybean area is declining by 1.07 million and spring wheat is dropping 418,000 acres.

Figure 2. Crop Acreage Shifts Since 1996

With nearly 96 million acres intended for corn, several states are projected to have record corn plantings, including Iowa, Minnesota, and North Dakota. In fact, corn acreage in North Dakota is projected to jump by over 1 million acres. Minnesota corn acreage is increasing by 600,000 acres, while Iowa, Nebraska, and Ohio corn area will rise by at least 400,000 acres each.

Only 9 states are projected to plant less corn, with the most notable cuts in Illinois (down 100,000) and Kansas (down 200,000). For soybeans, while overall acreage is down, there are three states that plan to have record acreage, North Dakota, New York and Pennsylvania. The largest increases in soybean area are in the Dakotas. Illinois will also increase soybean area, directly offsetting the drop in corn area. The largest decline in soybean area is projected in Iowa. With 95.9 million acres of corn and 73.9 million acres of soybeans, we are looking at another set of large crops.

Using the 20-year average harvest ratio and an USDA yield estimate from the February Ag. Outlook Forum for each crop, this would lead to a projected 2012 soybean crop of 3.189 billion bushels and a projected 2012 corn crop of 14.296 billion bushels. That would result in the 4th largest soybean crop on record and the largest corn crop by over 1 billion bushels. The acreage numbers from the Prospective Plantings will serve as the official USDA numbers until the June acreage report.

Market Reaction

The market reaction to these reports was positive despite the large corn acreage number. With tighter corn stocks and lower soybean area, the bulls were out in force after the reports. Corn and soybean futures increased significantly for both old and new crops. For the 2011 crops, USDA has projected season-average prices of $6.20 per bushel for corn and $12 per bushel for soybeans. Before the reports, futures had indicated season average prices of $5.88 for corn and $12.19 for soybeans.

After the reports, those prices shifted to $5.99 and $12.32, respectively. And since the nearby corn futures were limit up after the reports, there is still some room for prices to grow. For the 2012 crops, USDA released unofficial season-average price estimates at their Ag Outlook Forum in February. Those were $5 per bushel for corn and $11.50 per bushel for soybeans.

Those price projections were based on 94 million acres of corn and 75 million acres of soybeans. Before the reports, futures had outlined 2012 season-average prices of $5.08 for corn and $12.48 for soybeans. So the futures markets already had a premium compared to USDA’s early estimate. After the reports, the futures-based season-average price estimates rose to $5.24 for corn and $12.93 for soybeans. There has been some trade talk that soybeans could buy back some acreage.

In mid-March, based on trend yields and ISU Extension production costs, corn held roughly a $100 per acre advantage over soybeans. Now, that return advantage is down to $40 per acre. But many acres were already spoken for as farmers put down fertliser. But we should expect to see more soybean acres by June. Over the past 20 years, the Prospective Plantings report has under predicted soybean plantings in 12 years. The average difference between the final soybean planting number and the Prospective Plantings estimate is 1.13 million acres. Mother Nature usually forces a little bit smaller corn area and a larger soybean area than intentions.

Further Reading

- You can view the full report by clicking here.

April 2012

TheCropSite News Desk

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