With the release of the USDA’s planting intentions report last Friday, we now celebrate the unofficial start to the new crop supply and demand season.
In grains the focus this time of year begins to slowly shift from what the situation is in old crop, or what is happening with the grain that is in the bin, to that of what is going to happen in the coming production season and beyond.
I feel like this is part of the reason my life feels like it is going by so quickly. I never live in the moment, instead now I start to think about all of the different situations that could unfold over the next 18 months and what they would mean for price. But enough with the existential crisis, let’s take a look at what the USDA’s numbers said on Friday and what they could mean for market direction in the weeks ahead.
Before we start, a caveat, there are few things in this world I can guarantee, but I can feel comfortable guaranteeing two things here. First, we will see changes in plantings from the numbers released Friday, perhaps even significant ones. Second, the outlook I present to you today is simply just a lump of clay. A whole host of fundamental factors will help mold that clay from what it is now to our final outlook. It is going to change, likely in major ways.
Today’s conversation is simply an exercise in what ifs using the starting points we have now that we’re over halfway through our old crop year and gearing up to put seeds in the ground for the new one.
To begin, let’s look at some facts surrounding the collection of data by the NASS branch of the USDA responsible for Friday’s numbers. The data released Friday was gathered by surveys sent to farmers for stocks and acreage and commercial elevators for stocks. According to Lance Honig, the head of NASS, the response rate from farmers for the survey was just over 48%, while the response rate from commercials was around 72%. The data compiled from responses was then extrapolated to correlate with historical adjustments and ratios and presented as seen on Friday.
The surveys used were sent out the last half of February through the first half of March and simply asked farmers what they were intending to plant and how much grain they had on hand. NASS does not take weather or weather forecasts into consideration when developing planting intentions, with NASS officials saying the report is as it sounds, a summary of farmer intentions ahead of the planting season.
Now that we know what the farmer intends to plant, let’s look at what that could mean….
Before we can do that though, let’s discuss the quarterly stocks numbers shall we, as they are the first piece of the total supply pie and too have an impact on the entire new crop supply and demand situation we’re going to discuss here. Friday’s numbers were not surprising in the old school couple hundred million bushel swing from expectations to actual as seen throughout late 2020 and 2021 sort of way, but they were a touch lower than expected.
Stocks figures are a kind of reconciliation in the market, giving us insight into how our overall projected supply is holding up in the face of our overall projected demand. A smaller number than expected is a sign of either better demand or a smaller supply and is a sign we will see another reduction to old crop ending stocks. The miss in corn was small enough in comparison to expectations that future adjustments will be minor, while the miss in soybeans would indicate we could see a further reduction in future ending stock estimates.
Okay, back to new crop projections, let’s say for the sake of this exercise we meet current USDA demand projections and finish the old crop year with a carryout of around 1.25 billion bushels on corn. For soybeans, let’s adjust carryout another 10 million bushels lower from current projections—ignoring the current price incentives to increase imports and/or see a reduction in projected USDA export demand—down to 200 million bushels.
Taking all of this into consideration, using trendline figures from the USDA and the demand projections outlined in the Ag Outlook Forum figures released this past February, provides us insight into what our first official USDA supply and demand outlook for new crop will look like when released in May.
Doing this gives us the first look at new crop carryout projections of around 250 million bushels for soybeans, up decently from this past year, but still leaving zero room for error in production. The same could be said for wheat, where using USDA plantings, ag forum numbers and other factors currently available to aid with projections, we would see overall wheat carryout up slightly year over year—though the by-class breakdown is an entirely different discussion to be had on another day.
Corn isn’t quite the same as even with what could be described as extremely optimistic year over year demand growth, we could see carryout balloon to over 2 billion bushels. Using the same exercise as described as above, adjusting old crop ending stocks, using planting intention numbers, historical harvest percentages and trendline yield up against ag forum projections of a 600 million bushel yearly increase in demand to 14.5 billion —something only likely able to be accomplished with much lower prices or a world able to avoid a recession—puts us at a carryout of 2.17 billion bushels.
Of course, while I feel like Charlie Brown here, with the USDA posing as Lucy holding the football and am hyper-aware of all of the ways this outlook will change, it’s important to remember using the current numbers as they stand in the corn market we now have far more room for error than we’ve seen the last couple of years.
So, what does this mean? Well, to be honest, absolutely nothing if the weather doesn’t cooperate or if something major happens when it comes to outside economic factors that influence money flow, price direction or support a big increase in demand.
China continues to buy old crop corn from the US a couple cargoes at a time, which is somewhat out of character, but the 12 flash sales in the last 14 trading days have been helpful to support price. Domestic corn basis in the West remains on fire, with Friday’s figures showing a 335 million bushel year over year drop in available corn in Nebraska and Kansas. The drop in futures price ahead of planting after what has been relatively strong farmer movement has locked bin doors, with many uninterested for now in what kind of values are out there as grain movement isn’t in the cards or they’re bullish flat. With over half of the USDA’s March 1st stocks on farms, it’s going to take a big spike in price to move bushels the next 8 weeks or so—or we’re going to have to see the spread between the May and July become punitive enough to force commercial movement.
Looking ahead, the best thing about getting this report out of the way is it is no longer lurking with a potential bearish surprise. Weather these next few weeks looks less than conducive to planting, likely to trigger talk of acreage adjustments as traders and farmers love to talk about prevented plant like it’s an easy decision to make—when it is honestly the last thing a farmer wants to do. Price continues to incentivize production, meaning this is a conversation we will be having well into June and beyond.
As always, don’t hesitate to reach out with any questions. Have a great week and stay safe!
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
