As I mentioned in last week’s column, corn and soybean futures prices had been consolidating for months, and a large potential price breakout was due. To make that price break out occur, the market just needed fresh fundamental news to spur price action. The March 31 Prospective Plantings report delivered. The USDA data was surprisingly bullish, with corn and soybean futures closing limit up on report day!
The planted acres numbers for both corn and soybeans came in below pre-report expectations, shocking the industry and sending futures prices higher. The bottom line is that the new crop prices are now well supported, and have potential to continue higher as more acres need to be “bought” for spring planting.
Soybeans lead bulls
Still the bullish fundamental leader in this marketplace, soybeans futures did don a bullet proof vest for this report, and the fundamentals continue to be bullish heading into spring and summer.
Heading into this report, trade had assumed that soybean planted acres would be near 90 million acres, as was suggested on the February Outlook Forum data. The released acres data came in sharply less at 87.6 million acres.
Looking at the chart, using this new 87.6 acre number from the USDA, and applying a 99.1% planted/harvested ratio as was used in the March 9 WASDE report, you can see how different yield scenarios result in sharply different ending stocks scenarios.
Using this new 87.6 planted acre number, and assuming constant demand, a bumper soybean harvest is needed to alleviate the current, extremely tight ending stocks situation. There is NO room for even the slightest weather hiccup. With yield at 51 bushels per acre, a solid trendline number, ending stocks slash to 7 million bushels, down from the current number of 120 million bushels.
Keep in mind, the charts also assume demand from the March 9 WASDE report, so please understand going forward that demand will ebb and flow in upcoming USDA reports. In the short term, some feel that the USDA needs to increase the export demand category since the U.S. has already sold 99% of the expected USDA data; 90% of those beans already left the country. But also down the road, because ending stocks are so tight, imported soybeans will likely also increase.
Bottom line, soybeans need more planted acres. Going forward for the 2021-22 crop year, it would take a black swan of demand destruction to take the friendly fundamental aspect away from soybeans. Clearly, weather this spring and summer will be critical for soybean prices.
Corn is friendly, too
The Planted Acreage report gave a bullish surprise for corn futures too. Planted acres came in well below pre-repot estimates at 91.1 million acres. That was even lower than the February USDA Outlook number of 92 million acres. When the trade saw that jaw dropping lower number on the report yesterday, and no bearish information from the quarterly stocks report, it was enough to send corn futures limit up.
Let’s take a look at how 91.1 million corn acres and different yield scenarios play out to ending stocks.
In the charts that follow, there are three important things to understand. Like soybeans, regarding demand numbers, I used demand information from the March 9 WASDE report. Next, I used a 91% planted to harvested ratio. (Traditionally, the planted to harvested percent ratio is always somewhere between 91% and 92%. I chose 91% as that matched more closely with the March 9 WASDE data.) Last, I used 180 bpa as my trendline yield number and 175 bpa as my “lower” yield number.
These yield estimates pretty much assume great weather this growing season. This does not assume drought or other weather/production issues. (Compare to the yield for the 2020/21 season of 172 bpa and the yield from the 2019/20 season which was 167.5 bpa.) And finally, a 170 bpa is represented to show how dramatically lower that could make ending stocks.
As indicated in the chart, yield of 180 bushels per acre does allow for an increase of ending stocks to 1.82 billion bushels, up from 1.5 currently. A slight reduction of yield at 175, puts ending stocks lower to 1.4 billion bushels. Lastly, 170 yield (only slightly lower than last year’s number of 172) pegs ending stocks under one billion bushels at 995 million bushels. That friends, if should occur, would be a reason for $8.00 corn again.
April 1 begins a new quarter, with potential for “fund money” to dramatize price movement thanks to those expanded position limits. With the bullish news released from the USDA and with another USDA WASDE report right around the corner on April 9, there are likely to be plenty of price fireworks ahead! This is a market where you need to manage upside price potential, but also manage price risk. Brush up on your marketing skills, and if you have questions, feel free to contact me. I would be happy to help.