The star attractions of Thursday's USDA reports were clearly the lower-than-expected planting intentions for 2018 corn and soybeans. USDA showed intentions of 88.026 million acres (ma) for corn and 88.982 million for soybeans. Both were about 2 ma smaller than consensus estimates going into the report.
The market took off and ran with the numbers, posting gains of 14 1/2 cents in Dec corn and 31 1/2 cents in November soybeans.
If we assume a 50-bushel-per-acre (bpa) national average yield in 2018, a 2 ma surprise cuts production by 100 million bushels (mb), assuming that harvested acreage tracks the plantings. It will not cut 2018-19 ending stocks by the same amount, even if that ends up being the actual acreage. Higher prices (see Thursday) will reduce consumption and keep stocks from tightening by the same amount. Still, it's a move in the right direction if you have little or no 2018 production sold.
On the corn front, a 1.45 ma cut in plantings versus expectations of 89.479 million (it would be down 2.14 ma versus a year ago) would imply about 1.33 million fewer harvested acres, with silage and abandonment recently close to 8% of planted acres. At 170 bpa, we're looking at 227 million fewer bushels than the trade was expecting earlier Thursday morning. As with the beans, ending stocks would shrink by less than that due to price rationing. It is still a bullish input, and the computers ran with it Thursday.
What about those weeds?
The trade pretty much overlooked the Grain Stocks report, which was bearish for both corn and soybeans. Soybean stocks on March 1 were 70 mb larger than the average trade guess and 368 mb larger than last year. That is some serious stockpiling. As with the acreage, not all of the "surprise" will flow to year-end carryover, but some of it will. Our estimate would be 50 mb. This goes directly against the tightening stocks from the smaller-than-expected acres. In case you've missed the point, the net impact of the two reports on likely 2019 soybean ending stocks is likely only about 50 mb on 2018-19 ending stocks.
For corn, March 1 stocks were 182 mb larger than expected and 266 million larger than year ago. Feed and residual use are likely at least 50 mb smaller for the full year than WASDE showed on March 8. This can be attributed to more distillers dried grains (DDG) substitution for whole corn in feed rations, with record DDG production coming out of the ethanol expansion. The residual can't be overlooked, as it is the adjusting factor if NASS missed on crop size.
Depending on the pace of corn exports, old-crop carryover could still be 2.37-to-2.40 billion bushels (bb), not the 2.127 bb shown in the March WASDE. The trade guess for March 1 stocks was only 84 mb bigger than a year ago. Of that 227 mb of potentially reduced production, 182 million was offset by the stocks surprise. After slippage, the new-crop ending stocks decline due to Thursday's numbers might only be 80-to-90 mb from previous expectations.
So Thursday's numbers were fundamentally net bullish, but probably not as much as the price movement would have you believe. Part of the rally Thursday was fund money sloshing around at the end of the quarter, as well as shorts from the past two weeks scrambling to get out of positions.
You can wait for follow-through, but be prepared to act -- whether because the money is all in or because the Chinese decide to limit purchases to make a point.
Alan Brugler can be reached at email@example.com
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