Jon Scheve with weekly market commentary made on June 28, 2024
This week the USDA released the latest acreage and stocks on hand report, which is arguably the most important of the year. The following are the highlights.
Corn Acres
The USDA is predicting 91.5 million planted corn acres this year. It showed 3.3 million acres still needed to be planted while the survey was collected. However, 2.2 million acres were still being planted during last year’s survey, and that was never a big deal. I suspect the final planted acreage will ultimately end up being around 91 million acres or higher.
Flooding
There have been a lot of flooding concerns this year, which could show up as a decrease in harvested acres on the January report. However, the USDA is using the 10-year average percent for harvested acres in this report. That means if weather remains normal throughout the US for the rest of the year, less planted acres would be abandoned, which would likely offset some lost acres from flooding.
Corn Stocks
The USDA showed a lot of corn still stored on farms. On-farm stocks were up significantly, except in Nebraska which had a lot of dry weather last year.
Despite the July to September futures contract spread narrowing and basis in the western corn belt strengthening this past month, it doesn’t mean there is a corn shortage in the US. Most US farmers had at least a $5 per bushel breakeven last year. After two years of high prices, many farmers thought corn values wouldn’t drop below $4.50 for a long period of time. And if it did, they had enough cash reserves to wait for cash corn to go back above $5 and sell at a profitable level.
Now I think a lot of farmers will wait until after the July 4th holiday to see what the weather will be like during pollination. If the weather looks good, some farmers will start moving corn out of their bins in mid-July. If the weather continues to be “normal”, then the balance of that corn on the farm will have to move in August and could mean the downside in the market has not yet been hit.
Corn Supply & Demand
A carryout/ending stocks of 2,000 million bushels is too much corn for the market to handle and will push values under $4. On the flipside, a carryout closer to 1,000 million bushels would push prices back to $8.
This supply and demand table reflects 91 million acres, instead of the 91.5 number the USDA just reported.
As this chart shows, it will take a significant drought in late July for the average national yield to fall below 175. And, unless carryout drops below 1,750 million bushels, it is unlikely December corn will rally anywhere close to $5.
Bean Acres
For the 10th year in a row, the trade overestimated how many bean acres would be planted. With only 86 million acres likely getting planted, August weather will be critical to where prices can go. The USDA did say 12 million acres were left to be planted while the survey was completed, compared to 8 million last year. This may be a factor to watch as the summer progresses.
Bean Stocks
Like corn, farmers are sitting on a massive amount of beans waiting for more profitable prices. Most farmers have a breakeven of $12 cash on last year’s crop, which the market hit this past month. Many of these farmers must have seemed convinced a bigger rally was possible and choose to hold on instead of selling.
China
The biggest concern for beans is lack of interest from China. Last year had the 2nd lowest export number of the last 10 years, and now the Chinese have the least amount of new crop beans purchased from the US ever. If things don’t turn around, it will be difficult for beans to rally.
Beans Supply & Demand
The market gets concerned when carryout drops below 200 million bushels, which can push prices above $14. With 86 million acres shown in the following supply and demand table, it still means for prices to rally there needs to be either a 2 bushel per acre drop in yield or China needs to buy more beans.
Because South America is the biggest producer of the world’s beans, the US is a supplier of last resort these days. That means weather in South America is more important for our prices than we sometime realize.
Bottomline
This report was bearish corn. Unless it turns hot and dry quickly, there is no positive story left for corn this year. Currently, the 2-week forecast is favorable for producing trendline yields throughout the US. After the holiday week, some farmers will likely start unloading their bins. And while it may start as a trickle, with only 70 days left until harvest is in full swing, corn’s downside potential seems high going into August.
There are still a lot of questions for the bean market. Fewer acres mean any weather hiccup or increased China purchases could make the market take off. However, if the weather is normal throughout summer and the export pace doesn’t increase, there will continue be downside in the market.
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387
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