This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
We were all braced for a big market-moving surprise from USDA on Tuesday, and what we got was a whole lot of nothing. The only real surprise was that the only surprise was in wheat, of all things.
Corn planted acres came out nearly dead on March intended acres. Many had been talking in the market about a big shift away from corn since inputs rallied so sharply into the planting season. But when we got the trade estimates a few days ago, they did not show the market was expecting such a big shift. The rally in the market and the fact that many producers already had inputs locked in, as well as good planting weather, led to planted acres coming in almost dead on March expectations. Soybeans did see a sizable uptick in acres from March intentions, but it was fully anticipated by the market. Winter wheat acres were a bit of a surprise, as USDA estimated acres down almost 1 million acres from what the market was expecting. That is 1.6 million acres less than last year, but we still have higher stocks. Lower wheat acreage is likely a result of higher abandonment due to the lowest-rated crop since the modern rating system was implemented. Total crop acres are down 2.2 million from last year.
In some years, we do not get a surprise on acreage but get a curveball on the stocks report. This year, the corn and wheat stocks were very close to market expectations. Corn stocks were about 100 million bushels below market expectations. That was not a huge miss, but it does seem to indicate another issue with USDA’s balance sheet. Exports and corn for ethanol are reported regularly throughout the year, so we typically have a pretty good handle on them as we move through the marketing year. We can update demand estimates for them as we go. Feed demand is a bigger wild card. We have regular counts of animal populations but have to guess how much feed demand. The feed and residual entry on the balance sheet can be like a catch-all for USDA if it needs to play with some numbers to balance the balance sheet. Its feed demand has been too high all marketing year based on animal populations. The theory was that USDA was going to lower the yield on the January report and offset that loss by a reduction in feed demand. But in January, it raised yield and production rather than lowering them. If it had lowered feed demand and raised production, that would have really been ugly, so it left feed demand alone to work it out later. Lower stocks on this report may mean that the yield increase on the January report was wrong. We have seen wild swings in stocks numbers in the last few years, so the pendulum may swing the other way on the September stocks report. But this does leave some lingering questions.
Overall, the July WASDE should now be a pretty quiet report, too. Acres were close to expectations and are known now, and we will see another crop condition update before we get it, but we are still a ways from pollination for much of the crop. There can always be a curveball from USDA, but a quiet stocks and acreage report increases the odds of a quiet July S&D report.
Since there was not much new to price in from the report, the market is already back to trading weather and rumors of Chinese purchases. The funds had been massive sellers leading up to the report and had a very negative report priced in, so a neutral report was able to get a slightly bullish market reaction. The Midwest precipitation forecast maps show rain falling where it is needed but, more importantly, not where it is not needed right now. You have to be hiding under a rock not to know there is a massive heat wave across the whole country. Right now, heat units are needed in many areas, so the market perceives the heat as beneficial, not harmful. That will change quickly if the heat sticks around into pollination.
Grain markets are closed today, Friday, July 3, for Independence Day. We will have a normal open Sunday night and a full five-day week next week, ending with USDA’s July Supply and Demand Report on Friday at noon. Weather and Chinese purchases, or lack thereof, will likely dictate market direction as we continue to march through the growing season.