Before the reports were released, the trade was expecting 95.2 million corn acres, down 1.8 million from the March report. The trade was also pegging soybean acres at 84.7 million, an increase of 1.2 million from March.
However, according to USDA, both numbers were lower than the trade. Corn acres were pegged at 92 million and 83.8 million acres of soybeans. Karl Setzer, commodity risk analyst for AgriVisor, said the trade was caught off guard.
“The March intentions [for corn] came out at 97 million acres—that was immediately cast off by the trade,” he said. “After revisions and hearing about the good planting, all of a sudden we come out at 92 million.”
With 92 million acres of corn, and 84 million harvested acres multiplied by USDA’s projected yield of 178.5 bpa, Setzer said that makes a roughly 15 billion bushel crop. That would be 1 million bushels under what USDA is using in their current balance sheets.
“If we go a step further where the trade is rethinking the yield closer to 173.2 trendline yield, if we take another 500 million bushels off production, we’re talking about a 1.8 bushel new crop carry out that’s under the current one,” he said. “It would take our stocks-to-use projecting 22.5 percent. If we back that up, all of a sudden we’re down to about 11 percent stock-to-use with the current demand projection. That’s a game changer. Not just in the U.S., but in the global market.”
Hot, dry weather across the entire Corn Belt is being forecasted over the next two weeks. With the funds holding a short position, Setzer said they need to rethink that decision.
“That’s where we start to see some of the short covering come from,” he said.
Compared to June 1, 2019, corn acres are up 3 percent, soybeans are up 10 percent. A lot of prevent plant acres came back into production. The planting data was also collected around the time the COVID pandemic began.
“That’s when we had everything fall apart,” said Setzer. “We had our ethanol [decline], we had uncertainty on feed demand. Did that many farmers walk away from 5 million acres, or was the 97 million way too high to begin with? I think it’s a combination of both.”
The Grain Stocks report arguably had more uncertainty that came with it than the Acreage report, especially on the demand side of the equation and farmers and the trade didn’t know what to expect.
Corn stocks on June 1, 2020 totaled 5.22 billion bushels, up less than 1 percent from the previous year. Soybeans totaled 1.39 billion bushels, down 22 percent. Setzer said with all things considered, there’s still a lot of unknowns of what’s going to happen.
“The corn number, not bearish at all—corn’s friendly,” he said. “Our stocks are 22 million bushels higher than a year ago, but that’s a moot point. We are using corn, but with the low production numbers being forecast, we’re going to need them.”
As for soybeans, Setzer says that the trade is going through more soybeans than was expected, and that’s shaken up the market.
Setzer’s full comments are in the player above.