February was a successful month for corn and soybeans producers.
For the month, new crop corn and soybeans gained 25.5 and 80 cents respectively while the average prices for the month for crop insurance purposes are $4.58 and $11.87. Corn’s February average is a full 70 cents above last year’s levels while the February average for soybeans was an incredible $2.70 above 2020’s guarantee.
We have not seen the ratio of February average prices favor soybeans to this extent, 2.59, in over 30 years. The ratio as we set guaranteed revenue levels suggests the market is concerned about planting enough acres to soybeans in 2021, and rightfully so.
Besides setting spring price averages, February is also the month where USDA gave participants a peek into the early planning estimates for the upcoming crop year at the February Outlook Forum. Yield is generally a non-issue since USDA will simply use what will end up being the trend-line yield for that crop year. Of interest is the preliminary estimate for acreage; USDA used 92 million acres for corn plantings and 90 million acres for soybean plantings.
Ending stocks impact
The key takeaway from this data is the fact that a trend-line yield on the aforementioned acreage will barely change ending stocks year-over-year if the USDA is close on its demand estimates.
Something worth mentioning is the percentage of the planted acres of corn the USDA is expecting to be harvested. Generally as planted acreage increases, it becomes more difficult to harvest a higher percentage of those acres. At 91.74%, corn’s harvested acreage could easily be 0.74% too high. It might not sound like a lot, but on a trend-line yield it amounts to an extra 122 million bushels (mb) of corn production that could potentially not materialize.
While no one will talk about this now, it could become one more conversation piece as we get deeper into the growing season.
While I don’t have a similar complaint with harvested acres for soybeans, it is interesting to note that it would require a soybean yield of 51.35 bushels per acre (bpa) to have a total production number equal to the total usage number USDA is using for the 2020/21 marketing year. Let me say that in another way in case it didn’t jive the first time. USDA is currently assuming 4.575 billion bushels (bb) of total demand for the 2020/21 marketing year. On 90 million planted acres, it would require a yield of 51.35 bpa to produce 4.575 bb; the current record is 51.9 bpa.
Let’s look at the issue from a different angle. The highest amount of successfully planted soybean acres thus far was in 2017 at 90 million, the same amount USDA used in the Outlook Forum. The yield in 2019 was 49.3 bpa. Using USDA’s demand assumptions but a 49.3 bpa yield instead, we would be down to a paltry 14 mb carryout which is a one-day supply.
This, of course, will not come to fruition because the market will have a very important job to do which is to discourage demand and encourage even more South American plantings next fall.
Planting intentions report
While everything we discussed above is price positive, we must remember the Planting Intentions report, which is survey-driven, will be released the last day of this month. An acreage estimate above 92 and 90 would likely cause a negative reaction to finish the quarter, especially with fund length and profit levels rather high.
Should USDA surprise on acres just ahead of what could be a rather speedy planting pace if conditions stay relatively dry, a hard correction could be in order.
If that would bother you, I’d suggest looking at short-dated puts priced off new crop futures to protect current levels. After all, new crop soybeans have eleven consecutive months of gains while new crop corn has been higher eight of the last eleven; the monthly chart of each is below.
Feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT.