Posted on July, 5, 2023 at 09:17 am
SOYBEAN futures soared, and corn futures tanked in the immediate aftermath of the United States Department of Agriculture delivering some extremely surprising numbers to the market on Friday, revealing a significant swing in the US row-crop plantings to corn at the expense of soybeans.
The USDA’s annual Planted Acreage Estimates report pegged the corn area 2.23Mha, or 6.2pc higher year on year at 38.08Mha. This is the third highest since 1944 and the highest since 2013. The estimate is 2.3pc higher than the department’s March Prospective Plantings report and represents the largest increase in the corn area between the March and June reports since 2007.
By contrast, it estimated the area planted to soybeans at 33.79 million hectares (Mha), 1.6Mha or 4.5pc lower than in 2022, but still the fifth-largest planted area on record. The forecast is 4.6pc lower than the March Prospective Plantings report. The average trade guess was 35.49Mha, so it came in a whopping 1.7Mha lower: a big miss!
A sharp dip in soybean futures prices, which commenced in mid-April and continued through May, appears to have led to the area shift to corn. Farmers kept planting their swing area to corn all the way through May rather than switching to soybeans when prices started to fall. However, the area expected to be planted to corn and soybeans combined has decreased by 770,000ha, reflecting the impact of an extremely dry spring and early summer.
According to the USDA, farmers still had 1Mha of corn and 3.33Mha of soybeans to plant as of June 1, down from 1.63Mha and 6.4Mha respectively at the same time in 2022. Much of the unplanted soybean number would broadly reflect the intended double-crop area, which will be seeded after the winter wheat harvest has been completed.
The USDA also released its quarterly Grain Stocks report on Friday, providing estimates of on-farm and off-farm inventories as of June 1. Corn stocks hit their lowest level in nine years at 104Mt, 5.6pc lower than the same date last year. On-farm stocks, which make up 54pc of the total, were up 4.7pc, but off-farm stocks were 15.4pc lower. Soybean inventories came in 17.8pc lower year on year at 21.65Mt. While on-farm stocks were only down 2.6pc, off-farm stocks, which make up 54pc of the total, were 25.7pc lower than a year earlier.
Immediately prior to the report’s release, November soybean futures were trading 2pc higher after a flat day’s trade on Thursday, so obviously, some market participants anticipated a bullish number. However, nobody expected the magnitude of the area erosion, and the contract skyrocketed by 6.6pc at the peak before closing the day 6.1pc higher at 1343.25 US cents per bushel (A$740.75 per tonne). The tighter-than-expected inventories added further conviction to the buying, as US soybeans will likely require some rationing in 2023-24.
December corn futures were also trading in green territory on Friday morning ahead of the report but plunged as soon as the news hit the wires to close the day down 6.4pc at US494.75c/bul (A$292.34/t). However, this was the seventh consecutive daily fall after the July weather forecasts turned distinctly wetter for the corn belt, and then some good rains started to roll through some of the driest regions late last week. The extra seeded area and the significant change to the weather pattern overwhelmed the bullish stocks number.
Sadly, for some Midwest growers, a damaging derecho* swept across south-eastern Iowa and north-eastern Missouri and then into central Illinois and southern Indiana last week. The long-duration windstorm saw gusts of over 160km per hour in parts of Illinois, downing corn plants and damaging grain-storage facilities. Much of the downed corn is expected to recover if the stalks are not broken, but pollination and yield projections will definitely be affected.
The US sorghum area came in at 2.75Mha, up 194,000ha or 7.6pc compared to 2022. This is 336,000ha, or 13.9pc higher than the area projected in the March Prospective Plantings report, but is 200,000ha, or 6.8pc lower than the final planted area in 2022. Inventories are tight at 1.35Mt, down 51pc year on year after a poor harvest in 2022.
US farmers continue to increase their winter-cropping program, with the total area planted to wheat rising 1.57Mha or 8.5pc year on year to 20.08Mha. This is fractionally lower than the area anticipated by the USDA in its March planting update.
The winter wheat area has increased 11.2pc year on year from 13.46Mha to 14.98Mha. Of this total, 10.4Mha is Hard Red Winter wheat, 3.1Mha is Soft Red Winter wheat, and the balance of 1.48Mha is White Winter wheat. The USDA expects farmers to harvest just 69.5pc of the planted area, which, if it comes to bear, would be the lowest harvested ratio since 1933.
The spring wheat area of 4.61Mha is 2.8pc higher than farmers planted in 2022 and 5.4pc higher than grower planting intentions reported to the USDA earlier in the year. The USDA expects farmers will harvest 95pc of the planted area. The durum wheat area is down from 660,000ha last year to 600,000ha this year, 16.7pc lower than the March projection.
The barley area also continues to increase, with the USDA calling this season’s planted area 1.36Mha, up from 1.19Mha last year and 1.1Mha in 2021. The final area is 15pc higher than the March Prospective Planting number in March.
All wheat stocks came in at 15.79Mt, 16.9pc lower than last year, with 79pc held in off-farm positions. Barley inventories increased by 33.5pc over the past 12 months to 1.23Mt, with 69pc held in off-farm facilities such as mills, elevators, warehouses, terminals and processors.
Now that the June 30 reports are in, the market will very quickly turn its attention back to the improved weather outlook for the Corn Belt and its impact on moisture deficits and crop ratings. With the largest US drought expanse since 2012 across the Midwest, record corn-yield potential is now behind us, but a pause in the declining yield trend is likely if the weather gods keep their promise over the next couple of weeks.
Source: Grain Central