By Jon Scheve, Superior Feed Ingredients, LLC
What we probably know…
Bean acre surprise
Many were surprised bean planted acres were only 76.7 million, but it actually makes sense because bean prices failed to rally to prices most farmers could be profitable with average yields. It seems that some farmers made a wise financial decision to plant as few bean acres possible.
Prevent plant acres
The report showed prevent plant corn acres were 11.2 million corn acres and 4.3 million bean acres. This was the level that many in the trade were expecting over the past month. Some in the trade have tried to suggest that this means that total planted acres were on track to be 101 million acres for corn. It doesn’t appear that was actually what was going to really happen.
It’s my understanding that when applying for prevent plant corn acres, farmers could submit total corn acres equal to the most total corn acres a farmer planted in the last 3 years. Because corn’s guaranteed prevent plant payment was substantially higher than beans it appears that farmers generally tried to move as many acres they could to corn for both planted and prevent planted acres.
So, while rotation schedules may have suggested that a farmer should have planted less corn acres this year, the rules allowed farmers to call some prevent plant acres corn, when they might have otherwise been planted to beans. This allowance in the prevent plant rules seems to have skewed final numbers higher for corn and is likely a big reason the market was caught off guard.
Breaking down total acres
For the last 3 years, total corn and bean planted acres have been around 179 to 180 million with about another 2 million or so total prevent plant acres between the two crops. The August USDA report showed 166.7 total acres (76.7 beans and 90 million corn) and 15.5 million prevent plant acres, which totals 182.2 million acres, right in line with the last 3 years.
What about discrepancies between FSA and USDA-NASS numbers?
Some are concerned by this, but in past years FSA numbers have been less than NASS because some farmers choose to not participate in FSA programs, so these numbers will likely not agree.
Will prevent plant acres with corn as a cover crop skew final acres?
It’s possible, but I think it will be minimal. Corn seed was the most expensive cover crop farmers could buy, so it’s more likely other cereal grains or forages would have been used as cover crop. Also, those using corn for silage needs is relatively stable year over year because feedlots and dairies contract acres ahead of time and transporting silage a long distance is cost prohibitive.
What we don’t know…
Harvest acres vs. planted acres
The USDA report showed a 91.11% estimate of harvested acres to planted acres down from the spring USDA estimate of 91.76%. The difference between planted and harvested acres results from abandoned, flooded and silage/forage acres. In the last 15 years, harvested acres averaged 91.42% of planted acres while only being below the 91.11% put out by the USDA this month 3 times (2012, 2006, 2003). The average in those years was 90.08% with 2012 being the lowest at 89.83%. This means its possible harvested acres could still decrease another 1 to maybe 2 million acres, which would translate to 170 to 340 million bushels coming off the balance sheets. That could lead to better prices for corn if realized.
When will crops mature and how will yield be affected?
Currently the USDA is estimating a 169 final average yield. However, 50% of this year’s crop was planted after June 1, and historically late planted crops can see a 25% yield drag. This could mean a final national average yield below 156 bushels per acre. A yield drop this big could substantially change the balance sheet, reduce carryout and generate a big rally to ration demand.
The potential threat of an early frost
It’s been a long time since frost could have such a big impact. If normal frost dates are to occur it likely would result in hardly any yield reduction. However, if weather patterns are cool in September the crop development could be slowed and there could be a yield drag on a sizable portion of the crop even with normal frost dates.
What should we do now?
The latest USDA report sent a wave throughout the market that “capsized” the boat that most market participants were in. During swim lessons with my kids this summer they learned to swim on their back because it helps conserve energy and allows them to float in the water longer if needed. While some are flailing in the water right now, I think it’s a great time to float in the water and look up in the sky to remain calm. Panicking often leads to bad decisions or drowning. Instead, I’m waiting a little while, saving my energy and waiting for an opportunity.
It’s important to remember the marketing year is far from over. While planted acres are probably correct, it’s difficult to know what the harvested acres are going to be. Widespread late planting means weather needs to stay warm longer than normal and an early frost could impact the market in a big way.
With all this uncertainty it’s important to not panic, be patient, and be ready. Opportunity can come along at any time for any reason, so just like being tossed into the water unexpectedly, conserving one’s energy can be advantageous until the next rally hits.
Please email firstname.lastname@example.org with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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