Corn markets starting to ration supply?

While the corn market might show some short-term ill effects from higher-than-expected stock numbers released in late June, producers shouldn’t count out the possibility of another bull market in light of the potential for further yield and acreage losses in the Midwest, market analysts say.

It its June 30 planted acreage report, USDA reported the loss of 1.2 million corn acres in the Midwest due to flooding, a loss offset by a 1.3 million-acre increase in planted acreage from USDA’s March planting intentions report.

According to Dan Cekander, with Newedge, speaking at a CME Group press briefing at the Chicago Board of Trade, “the higher-than-expected corn acreage number was due to timely planting in the western Corn Belt. “Farmers were able to stick a little more corn in the ground.”

USDA estimated that 87.33 million acres of corn have been planted compared to average trade guess of 85.66 million acres. Soybean plantings of 74.53 million acres compares to expectations of 74.26 million acres. Wheat acres came in at 63.46 million acres.

In the planted acreage report, USDA widened the gap between harvested and planted acres for corn as a result of an updated survey of flooded areas in the Midwest. The gap increased from 7.2 million acres to 8.4 million acres, indicated lost acreage of 1.2 million acres.

Quarterly grain stocks were also higher-than-expected, suggesting that price rationing is occurring, according to Cekander. USDA reported 4.03 billion bushels of corn in stock, compared to 3.89 billion bushels estimated by analysts. For soybeans, there are 676 million bushels in stock compared to 663 million bushels estimated by analysts. USDA estimated 335,000 million bushels of wheat in current stocks, compared to an average trade guess of 261,000 bushels.

The higher than expected corn stocks, “shows us that corn rationing had started during the third quarter. During the first and second quarters, feeding was up 12 percent to 14 percent from the previous year. For the third quarter, we’re down 3.3 percent. On the feed side, we’re starting to confirm that, and this should be a negative factor for the corn market.

Jim Bower, with Bower Trading, said, “A lot of end users are really feeling the pressure of the grain markets right now. This report should give them a little bit of relief. But we have to be careful about this report. I’m not sure if the market has everything dialed in just yet.”

Bower noted that with the latest numbers, the U.S. corn crop “would still come in around 11.75 billion bushels, which is unchanged from the June crop report. But there are some gray areas. We still don’t know about prevented plantings, which aren’t turned into the government until August 15.

“USDA surveyed 1,200 farmers, which isn’t that many. They’re going to have to come back in and re-survey in August. We may not know for sure about the harvested acreage until we get to harvest.”

Bower added that the Midwest crop “is one of the most shallow-rooted crops I’ve seen in 35 years in this business. It’s been very cool and mild to this point, but if we hit any kind of hot, dry weather, we could have some serious problems.”

“If you have very good weather, we can push average corn yields into the low 150-bushel per acre area,” said Cekander. “Any adverse weather could push that down to the low-140-bushel area, and you have $10 corn.

He added, “With the soybean balance sheet as tight as it is, August, early September weather could mean the difference of several dollars per acre for soybeans too.”

Meanwhile, U.S. cotton acreage dropped to 9.25 million acres, only slightly less than March expectations of 9.4 million acres.

Winter wheat yields, noted Bower, “have been absolutely terrific. I hear of producers in Arkansas, Tennessee and Kentucky getting anywhere from 85 bushels to 105 bushel wheat. I don’t think USDA has totally grasped how big the winter wheat crop is.”

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