Grain Outlook

A SURPRISING USDA REPORT

June 30, 2009

Most grain market analysts thought they had correctly anticipated the USDA June 30^th National Agricultural Statistics Service (NASS) Acreage report: corn planted acres would be down and soybean acres would be up. In the Acreage report, based on farmer surveys, soybean acres were up, but not by as much as the trade had anticipated. Corn acres planted were off of everyone’s forward-looking radar screen.

U.S. farmers, despite rain delays and muddy fields, planted 87.04 million acres of corn; three million acres more than the average trade guess and two million more acres than farmers estimated they would plant back in March. Multiplying the approximate number of  harvested acres by the USDA estimated national average yield of 153.4 bushels per acre, gives a corn crop this year of about 12.3 billion bushels and projected ending stocks of slightly more than 1.4 billion bushels. Given that the corn crop condition improved by two percent in the week ending June 28^th, the USDA may increase estimated yield in the next supply and demand report coming out July 10^th. Seventy-two percent of the corn was rated good or excellent compared to 61 percent for last year’s crop on the same date.

The bottom-line for corn is there is an ample supply now, the growing crop looks like it will be larger than expected, and if all goes well for the rest of the growing season, there will be plenty of corn this winter and next year to satisfy all needs. The market factored this information into corn price by going near limit down. The outside markets didn’t help. The Dow fell when the consumer confidence index came in 5.5 points lower, when it was expected to go up; oil price dropped because of lower expected consumer demand; and the dollar strengthened.

Soybean price fell along with corn, but the drop was slight, moderated by lingering doubt about this crop. Even though NASS is now estimating the 2009 crop at about 77.5 million acres; up 1.8 million acres from last year, it might not be enough. First, all of those acres may not get planted. As of June 28^th, four major soybean producing states; Illinois, Missouri, Tennessee, and North Carolina, still had ten percent or more of intended acres left to plant. Secondly, while this soybean crop is in better condition than last year’s crop at this date, the 2009 crop was planted even later than the 2008 crop. If last year’s national average yield of 39.6 bushels per acre is used to estimate the size of this year’s crop to take yield drag into consideration, ending stocks fall from tight to non-existent. Of course, the final outcome depends on summer and early fall growing conditions. But it won’t be a surprise to see extreme soybean price volatility during the next few months.

Wheat prices fell; more in Minneapolis and Chicago than Kansas City, partly because the NASS reported 13.77 million acres of spring wheat planted, 675,000 more than expected by wheat traders. However, spring wheat crop development is well behind average. The June 28^th crop Progress report showed only 15 percent headed out compared to the five-year average of 40 percent.  The U.S. total wheat crop of 59.8 million acres is down five percent from last year. The other factor affecting wheat price is the rapid progress (finally) of the Kansas harvest. Kansas wheat producers cut about 3.5 million acres of wheat during the week ending June 28^th and were nearing the half-way point. It is still too early to judge the size of the Kansas crop. Yield and quality reports are varying over a wide range, south to north and east to west; even field to field in some parts of the state.    

U.S. grain sorghum acreage will be down by almost one-fourth from last year, according to the NASS report. A major portion of the reduction will be in Texas. Kansas grain sorghum acreage will remain the same as last year at 2.9 million acres; 41.6 percent of the U.S. total acreage. As of June 28^th, 93 percent of the Kansas acres had been planted, exactly the same as the five-average for the date. 

Although there are still some acres of soybeans and grain sorghum to be planted, attention will now turn to growing and harvesting the crops. Winter wheat harvest in the U.S. and around the world will finish in the next few weeks. Even though less area was planted to wheat this year, with the wheat left over from last year’s record harvest, the world will have a good supply of wheat. Already Russia is offering to sell wheat through the Black Sea port at about 50 cents per bushel less than the Kansas City truck bid.

Global coarse grain supply will be drawn down this year as demand is expected to be greater than re-supply. While the larger U.S. corn crop looks good now, much of it was planted late and may be adversely affected by hot temperatures during pollination. Also, an early frost might catch corn in northern states still trying to mature.

Soybeans remain the crop to watch. The drought-shortened South American soybean harvest and tight U.S. ending stocks make it all the more important that the U.S. raise a good crop this year. Even though growing conditions have been nearly ideal up to now, the late planting of this crop could hurt final yields given average first frost dates. 

U.S. acres are now known with more certainty. Subsequent USDA reports, starting with the July 10^th World Agricultural Supply and Demand Estimate report, will be watched carefully for yield and demand estimates in the U.S. and other countries. There will be further surprises.