US Planting Intentions

The USDA Planting Intentions report on Friday created a bit of a splash, with record-high soybean planting intentions exceeding not only the average trade guesses but also the highest published estimate. Corn acreage was just a freckle below 90 million acres, the lowest published figure. So what does this mean?

Keep in mind that this report is based on farmer surveys (83,290 collected), intended to alert producers when too many are trying to grow the same thing in the same year. USDA began data collection for this report in late February and officially closed it on March 18 for processing. That does leave a little bit of room for slippage, just because prices moved around a bit during that three-week collection period. As an example, cotton had a 4-cent range during that data-collection window, rising throughout the period. Late submissions could potentially have been planning on more cotton planting than those submitted around March 1. Soybeans were going the other direction during the collection period.

USDA suggested at the February Ag Forum that overall acreage would be down in 2017, based on depressed price levels. In one chart from the forum, USDA compared plantings for the big three (corn, beans, wheat) to a lagged price index. It has historically been a decent guide to total acreage, and would suggest combined acreage for those three crops would be down in 2017. The big three total on Friday was 225.538 million acres, which would in fact be 2.053 million smaller than last year, but within 245,000 acres of 2015. The forum estimate includes prevented planting acres, so is not directly comparable to Friday's figures.

My working numbers for this report called for planting of 91 million corn, 89 million soybeans, 46 million wheat and 11 million cotton. I missed a little of the corn-to-cotton shift. I assumed at least 2.5 million acres of prevented planting in 2017, which would be middle of the road for the past half dozen years. USDA (or, more accurately, the survey participants) appear to be using a little larger prevented planting assumption based on principal crop acres of 316.9 million.

Cotton futures prices have been the highest since July 2014, and world stocks-to-use ratios have been tightening. Those are good reasons for an expansion in U.S. cotton acreage in 2017 from recently depressed levels. USDA used 11.5 million acres in their February forum balance sheet, which was up 1.43 million from last year. Texas intentions rose 1.25 million by themselves, getting the national number to 12.233 million.

Now that you've seen the rationale for the acreage shifts, do these March intentions have much of relationship to the final numbers? If you look at the history of March Prospective Plantings reports, over the past 20 years, the average difference between March intentions and final corn acreage is 1.027 million. For soybeans, it is 1.264 million acres. The root mean square error in using March intentions to project January final acreage is 1.5% for corn and 2.0% for soybeans.

Even having the "right" acreage doesn't guarantee a good price. Wheat producers did the "right" thing in 2016 by cutting acreage. However, U.S. (and Canadian and Australian and other) yields were record high and totally offset the drop in acreage. The net result was even larger wheat ending stocks.

Let's look at March corn planting intentions and changes in final production in percentage terms. Last year, planting intentions were up 2.1% from the previous year, but final production was 6.6% larger. Harvested acreage was eventually 7% larger than in 2015, and of course we had a record yield that was 2.1% larger than the previous year. Final planted acreage crept about 400,000 higher, and the percentage of the crop harvested for grain was also higher than usual.

In summary, the broad price indices lean toward slightly lower principal crop acres, and that is what USDA showed us on Friday. We know that the numbers USDA released Friday for corn and soybeans will likely change by a million acres or more by final. A corn planting number below 90 million is modestly bullish, and a soybean number above 89 million is bearish. I have been telling audiences this winter that if beans are over 89 million, I want to plant more corn, but that assumes the corn number stays below 90 million acres. Reduced corn acreage increases price leverage if El Nino-type weather conditions enter the picture this summer or before harvest.

Also consider that it only takes a 3.5-bushel-per-acre yield drop in soybean yield (to 48.6 bpa) to erase the expected production from the extra 6 million acres being assumed for 2017. That would still leave us at the second-highest soybean yield in history. It would not result in a stocks reduction, however.

Alan Brugler can be reached at alanb@bruglermktg.com

(BAS/AG)

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