USDA Report: Something Has To Happen Because This Is Not Sustainable

Grains ScreamingGrains are screaming higher!  I love that line, in fact I used it today on Twitter as the USDA released its prospective plantings report.  Over the last several months I have questioned whether American farmers would be able to plant the 9.8 million more acres USDA had said it needed to meet demand.  So when I saw this morning their projection of 92.18 million acres of corn, I knew that was not enough.  Corn was locked limit up all day.

In many ways I am sorry that the USDA March 31st prospective plantings report is over.  In my mind there is nothing like it as it represents the official starting gun on the 2011-planting season.  I asked the question this morning at Darin Newsom’s online webinar when he compared the March 31 report to the start of the baseball season.  I said the corn market was not quite like opening day of the baseball season because it’s far more fun to watch.

The corn acreage number was a bit of a surprise to me because I was expecting corn acreage to go even higher.  Several years ago when the ethanol boom was just starting I estimated that the United States would need about 95 million acres of corn with a trend line yield of about 172 bushels per acre to meet growing demand.  I simply could not see the corn supply keeping up with demand.  I’m no prophet but that’s about exactly where we are now.  Something has to happen because this is not sustainable.  The market has to go higher to shut down demand.

Old crop corn seemed to fool the market.  For instance the March 1 corns stocks number of 6.522 billion bushels was 165 million bushels below the lowest rate estimate.  This does not happen often and combined with an acreage number somewhat expected the bulls broke through the fences.  Put a hot and dry June and July together and the unsustainable situation only becomes more acute.

Soybeans came in at 76.61 million acres, which was below the pre-report estimate of 76.9 million acres.  It was also below the 77.4 million acres grown last year.  I had actually expected this number to be somewhat lower because the corn acres had to come from somewhere.  Despite that, it was still bullish for the soybean market and with the problems in northern Brazil lately, soybean screamed higher too.

This USDA report was announced the day after my last speaking engagement this winter, which took place in Belwood Ontario.  Belwood Ontario is a small community nestled between Guelph and the greater Toronto area. This farming region is situated in an area of Ontario, which is cold.  In other words the growing season near Belwood is short for Southern Ontario.  There were some producers kidding themselves at the meeting about growing crops in one of the coldest parts of southern Ontario called the Dundalk plains.  It has one of the highest elevations in southern Ontario were growing things can be a challenge.  Needless to say the producers assembled at the meeting last week were considerably bullish going into the report.  They know that this is very rare air when it comes to the grain markets.

It is interesting because you get asked the question have we ever been here before?  As many of you know I’ve been in the business a long time and I’ve seen a lot of things.  However, I don’t think I’ve ever seen this.  If corn prices stay at these elevated levels where they are now with 92.18 million acres and a trend line yield of 162 bushels per acre, assuming all things equal, by the end of this crop year the corn stocks to use ratio will have shrunk to 3.8%.  That is assuming a constant demand growth of 3%, which we have attained almost every year, even after the 95/96-year when things were really tight.  So I’m thinking, we’ve never been here before.

How that will play out I surely don’t know.  I was hedged satisfactorily for today’s report and I will continue to do that throughout this crop year.  At the same time today I pulled my sprayer and big tractor out of the barn and took my planting units to get calibrated.  In today’s market environment that was a very enjoyable experience.  However, I’ve also been there when dragging the equipment out made me wonder what I was doing.  Those days seem so yesterday.  As planters get set to roll, just remember, “this is our time.”  The future seems to be in agriculture’s hands.