More corn acres, large carryover hurts price

Additional corn area will give users more confidence 
in getting adequate supply even if hot weather arrives

Farmers in the United States found an extra 3.3 million acres of corn, soybeans and wheat to put in the ground between the March and June planting intentions reports.

The number in the U.S. Department of Agriculture seeded acreage report June 30 that caught analysts by surprise was the estimate for 94.1 million acres of corn, which was 1.3 million more than the average trade estimate.

“It was above the high end of the trade guesses,” said Arlan Suderman, chief commodities economist with INTL FCStone.

“The trade was looking for a decrease in area.”

Favourable weather and high prices during the planting window spurred more corn acres. Most of the increase came from areas where there was rapid planting progress, such as Minnesota and the western half of the Midwest.

Some of the newly found acres are in places where wet weather prevented planting last year.

The acreage report knocked down corn prices, as did the USDA’s quarterly stocks report, which found corn stocks were 194 million bushels more than the trade had expected.

The big corn acres and stocks gave corn users more confidence that supply will be adequate.

“We’d have to have more adverse weather to tighten the balance sheet than previously expected,” said Suderman.

Rich Nelson, chief strategist with Allendale Inc., said it doesn’t bode well for the hope of a corn price rally sparked by adverse weather.

“This does help dull some of the potential upside for corn if we do get a weather rally going here,” he said.

Nelson is a little skeptical of the stocks number because it suggests feed use of corn fell 17 percent in the third quarter of the 2015-16 crop year compared to the same period a year ago.

That compares to a two percent decline in the first quarter and a one percent increase in the second quarter.

“The USDA is implying that somehow we had a drastic drop in feed usage this past quarter,” he said.

Nelson said the report changed no one’s mind about a fairly tight soybean supply-demand situation.

The USDA report, based on farmer surveys, pegged soybean area at 83.7 million acres, which was slightly below what the trade was expecting but within the range of estimates of 82.1 to 85.7 million.

Suderman said it wasn’t much below what the trade expected, but “the whisper number” in the trade was higher than the official number.

“The soybean acres increased (from last year), but they didn’t increase enough,” he said.

Soybean stocks were 40 million bushels higher than what the trade thought, but that didn’t stop prices from rallying. The August contract finished the day up 351/4 cents a bushel, while the November contract was up 42 cents.

The USDA pegged all wheat plantings at 50.8 million acres, which was above the trade expectation of 49.9 million acres. Stocks were about what the trade had predicted.

Suderman said there will be a big increase in the wheat production estimate in the July 12 USDA monthly supply and demand report.

Nelson said the big U.S. wheat number combined with a large Russian crop means no price rally is on the horizon.

“We really don’t see much upside for the next couple of months,” he said.

U.S. crops are looking great. Nelson is forecasting a minimum average corn yield of 165 bu. per acre and a soybean average corn yield of at least 45 bu. per acre.

However, a heat wave is in the forecast for the U.S. Midwest, which would arrive at the time of pollination and pod set. This heat would support prices, but there is also rain in the forecast.

“The only thing that’s keeping this market from being a really big bullish market for corn is the lack of dryness,” said Nelson.

Suderman said soybean prices could take off if there is a weather scare. He said corn could follow soybeans higher temporarily if that happens.

“Once the scare is over, wheat will probably be the anchor that pulls corn back down,” he said.

It doesn’t help that farmers in South America and Ukraine are planning big crops.

The soybean-corn price ratio is about 3:1, which is well above where it usually resides.

“I do think that we will have an unusually high ratio between soybeans and corn until (the market is) comfortable that soybean supplies are going to be adequate,” he said.

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