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Will an acreage expansion scare away grain bulls?

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USDA March 31 Reports Preview: What’s at stake in tomorrow’s reports?

Tomorrow’s Prospective Plantings and Quarterly Grain Stocks reports from USDA are widely expected to increase price volatility after both reports are released at 11am CDT. Market watchers have been speculating about acreage for weeks now and while tomorrow’s results are not likely to be finalized until after next fall’s harvest, the update numbers will definitely jar markets.

Here is a quick preview of what to expect. Follow our live coverage of the reports, complete with updated USDA figures and real-time analysis at FarmFutures.com or on Twitter (@FarmFutures).

Prospective Plantings

U.S. Prospective Plantings

million acres

USDA March 31, 2021

Farm Futures Estimate

Average Trade Guess

Range of Trade

USDA 2021 Outlook Estimate

USDA 2020 Final Acreage

Corn

 

93.596

93.208

92.000 - 94.500

92.000

90.819

Soybeans

 

88.510

89.996

86.100 - 91.610

90.000

83.084

All Wheat

 

45.610

44.971

43.000 - 46.409

45.000

44.349

Winter Wheat

 

31.999

31.811

30.440 - 32.205

31.991

30.415

Other Spring Wheat

 

11.419

11.644

10.900 - 12.860

-

12.250

Durum

 

2.192

1.641

1.300 - 2.192

-

1.684

Cotton

 

-

11.905

11.400 - 12.500

12.100

12.093

Sorghum

 

-

6.805

6.200 - 7.200

7.200

5.880

Barley

 

-

2.728

2.500 - 3.100

-

2.621

Oats

 

-

2.874

2.750 - 3.020

-

2.984

Rice

 

-

2.733

2.600 - 2.980

2.700

3.036

Source: USDA - National Agricultural Statistics Service, Reuters

Corn, soybean, and wheat acreages are expected to increase this year, as evidenced by high commodity prices – and also rising input prices as noted in a recent Ag Marketing IQ column by Farm Futures contributing analyst, Bryce Knorr.

The options for profitable returns are much more abundant for grain farmers across the U.S. this year and it makes estimating 2021 acreage more difficult than in years past. A steady rally in grain commodity prices since last August suggests more acres will be brought online than previously thought.

But if we have learned anything over the past year, it is that nothing is certain. These survey estimates are likely to change in the near future as Mother Nature rolls the dice on Heartland farmers’ crops.  

Farmers and markets alike are banking on more favorable growing conditions after two years of anomalous weather events which led to 19.6 million and 10.2 million acres of farmland being placed into prevent plant acreage in 2019 and 2020, respectively.

Weather patterns in the coming weeks will largely dictate how many of those acres will be put to use this year. A fading La Niña weather pattern could certainly help reduce drought concerns in the U.S. Plains, where nearly 82% of acreage is in some form of dry or drought condition, that could hinder planting activity. But the stakes are high this year – if Mother Nature does not cooperate, weather rallies may define pricing opportunities this growing season.

Tight current supply conditions are underpinning much of strength in recent rallies. And price movement tomorrow will largely be a response to whether or not markets believe the projected future corn and soybean supplies are big enough to replenish dwindling 2020/21 stocks.

Here are a couple examples:

  • Farm Futures’ estimate of 93.6 million acres of corn translates to 15.4 billion bushels produced in 2021/22, given a 179.5-bushel-per-acre trendline yield. Factoring in current USDA projections, Farm Futures estimates place 2021/22 ending stocks at 1.815 billion bushels. The resulting stocks-to-use ratio of 12.0% would be an increase from this year’s 10.3% and would likely be the liquidity boost the corn market needs to maintain adequate supplies.
  • Farm Futures’ soybean estimate of 88.5 million acres will likely still result in another year of tight supplies if production only reaches 4.4 billion bushels. Given current USDA supply estimates and new crop demand projections, the 2021/22 soybean stockpile will likely only leave 71.9 million bushels available for use at the end of the 2021/22 marketing year. That translates to 6 days of carryout and a new record tight stocks-to-use ratio of 1.6%.

Despite a new crop soybean-corn price ratio that clearly favors soybeans due to the dwindling soybean supply situation, U.S. farmers are likely to plant corn at a higher rate in 2021 than soybeans. Our analysis suggests that if USDA’s soybean acreage estimate is much below the 90-million-acre mark tomorrow, soybeans will likely see a bullish boost.

But given the tight soy supply situation and the increased profit potential for corn, it will be hard for soybeans not to see upward price movement after USDA releases its numbers. Corn, on the other hand, will likely be less of a safe bet than soybeans in terms of rising prices.

The corn supply situation is still tight, though current demand forecasts may be giving corn futures more breathing room than those of soybeans. A USDA estimate tomorrow of anything over 94 million acres of corn would be bearish for prices, but likely only until peak export season heats up this summer. Current corn export demand estimates assume rather conservative export figures for both the 2020/21 and 2021/22 marketing years.

Spring wheat acres are expected to lose out to more profitable corn and soybean acreage in the Northern Plains this year. But white wheat growers in the Western U.S. will likely have the last say on spring wheat acreage.

Chinese demand will likely boost U.S. white wheat exports to 245 million bushels in 2020/21 – the highest volume since 1994. White wheat, primarily grown in Western states, could provide farmers another profitable crop alternative amid blistering export paces to China this year.

Prices have responded bullishly to tightening grain stocks over the past year. Early USDA forecasts for 2021/22 suggest grain demand could reach new heights, especially as the pandemic winds down. While a 2021 acreage expansion would reduce upward price mobility, global and domestic demand for U.S. grains may keep the rally going. For how long, no one can say.

Quarterly Grain Stocks

U.S. Quarterly Stocks

million bushels

USDA March 1, 2021

Average Trade Guess

Range of Trade

USDA March 1, 2020

USDA December 1, 2020

Corn

 

7,767

7,573 - 7,980

7,952

11,322

Soybeans

 

1,543

1,440 - 1,825

2,255

2,933

Wheat

 

1,278

1,227 - 1,415

1,415

1,674

Source: USDA - National Agricultural Statistics Service, Reuters

USDA also releases quarterly grain stocks data today, which will provide fresh insights to demand patterns between December 1, 2020 and March 1, 2021.

Market watchers are quick to point to rapid grain export demand in recent months, namely to China, as a key factor for rapid usage rates. Marketing year to date corn exports to China are already four times the total corn export volume sent to the world’s second largest economy in 2019/20. Marketing year to date wheat shipments are 8% higher than the five-year average, thanks China purchasing 4.5 times more U.S. wheat than the five-year average with a fifth of the 2020/21 wheat marketing year remaining.

Wheat usage could decline as much as 13% from March 1, 2020 levels thanks to the uptick in exports and growing livestock feed consumption, though the average trade guess suggests a 9% annual decline. Even amid the pandemic recovery, many Americans continue to increasingly cook at home, with 2020 wheat milling rising 1% over 2019 amid the dramatic shift to at-home food consumption over the past year.

But keep in mind that corn and wheat export volumes are not historically near seasonal peaks during the December 1, 2020 – March 1, 2021 reporting period. Weekly wheat export volumes during the reporting period actually fell 10% lower than the same time a year prior. And U.S. corn exporters have only just recorded their largest weekly volumes of the marketing year over the past four weeks with two of those weeks sitting outside the reporting period.

Lackluster ethanol demand is likely to offset any significant decline in U.S. corn stocks, as 2020/21 marketing year to date corn usage for production of the fuel additive remains 6.2% lower than the same time a year ago. Cattle on feed volumes offer more bullish (pun intended) support to corn usage rates as three of the four largest cattle on feed inventory readings were recorded in the past four months.

Soybean export volumes could cause more bullish activity in tomorrow’s reports. The U.S. has already exported just shy of 2 billion bushels of soybeans with a little over half the marketing year remaining. That volume accounts for 89% of USDA’s current export forecast for soybeans.

Crush volumes continue to set new highs as the new administration pushes green energy. While February crush volumes are expected to recede due to lost production time amid the cold snap, in the last four months U.S. soy crushers have recorded four of the five largest crush volumes on record. If average trade estimates are realized, March 1 soybean stocks could shrink by nearly 32% from a year ago.

Feed volumes could also have a significant impact on soy usage in the coming months, even if tomorrow’s figures do not reflect it. Year to date broiler egg sets are down 1.4% from the same time in 2019 in response to rising feed costs. The U.S. hog herd has already shrunk by 2% in response to last year’s coronavirus-related packing plant closures. Rising biodiesel demand will be necessary in the coming months to keep soybean prices at historically high levels

Grain stocks data will undoubtedly be a wildcard in today’s data dump from USDA. As Total Farm Marketing’s Naomi Blohm points out in a recent Ag Marketing IQ column. “Lower yields last fall, attractive prices, strong exports, and farmers owning more bins, makes it a bit trickier to know for sure where current supplies on hand actually are.”

At any rate, buckle up for a wild ride tomorrow!

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