Last Thursday’s USDA update provided some important insight into both old and new crop outlooks. While the Prospective Plantings report gave us a starting point for new crop production (read my thoughts on what those numbers had to say here), the quarterly stocks data allowed us to reconcile old crop demand with projections.
When it comes to demand, we are able to watch progress relatively closely throughout the year to make sure we are on track with where we should be on usage. For corn, there are three main demand sectors, ethanol, exports, and feed, while in soybeans, there are two, crush and exports.
When it comes to tracking export demand we get weekly updates, where we can see not only how much we are selling each week on Thursday, but we also get to see how much we are shipping out of the country every Monday. For corn, we get updated ethanol production numbers weekly, while soybean crush figures are reported once a month—both of which are also tracked and reported separately by the USDA’s NASS arm to help support industry data.
Feed demand is the only sector that proves difficult to track. When it comes to feed demand, many things from price to quality and just about everything in between can impact inclusion rates and the subsequent tonnage fed. Shrink and other factors contributing to disappearance otherwise known as residual disappearance proves difficult to track as well, making the quarterly stocks updates a nice way to ‘check in,’ so to speak, throughout the year.
Last week’s quarterly stocks data did not show anything surprising at first glance. Corn numbers came in slightly below pre-report expectations, indicating we could see a small amount of feed demand added into the corn balance sheet, but nothing that would move the needle in a big way. Soybean stocks came in slightly above pre-report expectations, but like corn, not in a way that would be considered big enough to result in any major changes to the balance sheet. Wheat is heading into its last quarter of the marketing year, and while the numbers released were slightly higher than anticipated, supplies for the most part are where they should be as we work towards harvest.
What was most interesting about the stocks numbers released Thursday was the make-up of supplies. As of March 1st, the USDA estimated nearly 61% of the nation’s corn crop was still on farm, up substantially from last year’s supply picture and up from the traditional percentage of on farm holding. For soybeans, just over half of the crop is still thought to be sitting on farm—a much larger than normal percentage for this time of year.
In the by state breakdown, many states across the Corn Belt see farmers holding 20-50 million bushels more corn than a year ago. The biggest by-bushel gains are seen in Illinois, with 160 million bushels more in on farm storage, while Iowa farmer holdings are up 140 million bushels, with Nebraska on farm corn storage up 105 million from a year ago.
Farmers account for all the year over year growth in soybeans stocks, with total holdings up 158 million bushels from a year ago. Of those gains, on farm stocks are up 183.5 million bushels, with commercial holdings lower year over year.
While slow farmer selling is no secret to the market, the confirmation of larger than normal on farm supplies seems to reinforce the idea that any big flat price rallies will be capped. This is, of course, if the farmer becomes a willing seller, something I struggle to see now that many feel the worst is behind us from a price threat standpoint and with spring planting coming.
While farmer selling has been slow, there has been selling, with many growers solving their short-term cash flow pinch well enough that they are no longer thinking about moving large amounts of grain. Instead, they are now thinking of field work and planting, waiting for a summer weather rally to re-engage. Now of course, this is not to say a nice pop won’t see a wave of farmer selling each time we find ourselves trading to a new short-term high for the move, but to think bushels will be easy to buy now without a solid flat price rally goes against a lot of farmer tendencies.
As a mentor would tell me when trading cash grain early in my career, “the easy bushels have been bought.” In his eyes, that was a word of caution to not get too cocky assuming one could continue to dominate a trade, and usually he was right, soon what had been an easy buy became harder as the hands holding onto the remaining bushels started to squeeze just a little tighter.
The flow of easy bushels into the market; commercial ownership, farmer sales to cover cash flow, previous contracts or to maintain quality have all been moved, now it will be interesting to see what it takes to make the farmer become a more engaged seller, especially with prices remaining well below their cost of production.
In the end, just as we thought supplies are plentiful, however, where they are sitting presents an interesting challenge to end users, as it may take more than a nickel or dime push on basis or the squeezing of a spread to incentivize selling. While in some areas where basis is wide and coverage is decent out into the summer it may not matter, in the areas where end users have reportedly been slow to get ownership, things could get more than a little spicy.
I will circle back later this week to discuss what is happening in cash markets here in the US and around the world, as well as give an update on farmer sentiment and the conversations we’re having now. As always, let me know if you have any questions. Have a great week!
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.
