This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
USDA released the Quarterly Stocks and Planted Acreage Report on Monday at noon. This is one of the biggest reports of the year and has a history of big surprises. This year was not one of those years. The market was not surprised at all. All the numbers for the big crops came out within the range of expectations with the exception of cotton (higher acreage) and sorghum (lower acreage). The data on this report is completely survey based. That contrasts with supply and demand reports which project (among other things) what yield and demand will be in the future. USDA will use these stocks and acreage data to correct future supply and demand reports including the next one on Friday July 11th.
On the stocks side, corn stocks came in almost dead on to the average trade estimate and well below last year’s figure. It indicates we still have very robust demand for old crop corn and the carryout will continue to get tighter. Beans and wheat came in above the average trade estimates but still within the range. In the case of soybeans, we are probably seeing a slow down in the seed and residual usage which will probably be adjusted in the July report.
On the acreage portion of the report, corn came out just below the average trade estimate and a little below the March Intended acreage estimate. The magnitude of the change is very small, but the direction of the change is key. With the price ratios and the fast pace planting started off at, many were bracing for much bigger corn acres. But toward the end of the planting season, the pace was slowed by too much rain in some areas. Soybeans also came out below the March estimate and the average trade estimate. Wheat was a little above expectations. This will be the highest planted acreage we have and the one we use in the balance sheet for most of the growing season. USDA will reduce it using FSA prevented plant data and they will also tweak the harvested acreage number at the end of the season.
The market did not have much of a reaction to the numbers. After how hard the markets sold off in the last two weeks, many expected some kind of positive reaction to these numbers. But without a certain weather threat, the funds are content and confident to defend their short positions, not bail out. We have taken some of the margin for error out of the crop now by reducing old crop carryout and acres, but we need a catalyst to spook the funds to cover. The most likely sources of that are weather that threatens supply, clarity on biofuel policy that increases demand, or a trade deal with specific agricultural commodities. Until something happens to spook the funds, they are going to continue to press the short side of the market. And end users are going to be hesitant to cover future needs if they think prices will continue to trend lower.
Markets will be closed on Friday for the 4th of July holiday. Then by next week we will have a lot of corn pollination within the 14 day forecast where confidence is higher. The market will be pricing in each new model run and a 3 day weekend is a lot of time for things to change before the market can price it in. That is why we see so much volatility around the 4th holiday.