It has been a frustrating week on my farm as raindrops keep inundating my fields. In fact, if it keeps up this spring will be very much like the spring of 2011 when corn planting stretched into June. The one redeeming factor is this year I have my corn planted and it’s not even close to late for soybeans. Give me heat and bright sunny days and a little wind and hopefully I will put that behind me.
There might be a few issues for my corn on some of my heavier clay fields. Emergence always is a problem on these fields especially when they get inundated with heavy rain. It is just another hiccup on the road to payday.
The road to payday certainly hit a few potholes on May 10th as USDA weighed in with the monthly WASDE report. Prior to the report traders were expecting a reduction in both corn and soybean ending stocks. This was expected because the US national corn basis has been at record levels and physical corn is hard to source in much of the United States. At the same time soybean exports have been extremely good to China and we all know that the South American soybean crop has not been as good as expected. So when the USDA released a report on May 10th, that information was already factored into the market.
Then the USDA landed its spacecraft on Greenland to measure the pineapple crop! In other words, the USDA is always full of surprises and this was no different. The USDA actually increased total crop corn ending stocks to 851 million bushels more than doubling the stocks to use ratio to 13.7%. This was a huge surprise as most trade analysts had expected old crop corn ending stocks to drop down to possibly 600 million bushels. The USDA also increased expected yield to 166 bushels per acre on 95.5 million acres. With deferred corn futures months inverted, it was dumbfounding. DTN Senior Analyst Darin Newsom in his webinar said it made no sense.
Of course there was much gnashing of teeth over these USDA corn numbers. July corn finished almost $.20 lower on the day and December corn finished about $.10 lower on the day. At the same time the USDA reduced old crop soybeans by 40 million bushels, which was at the low end of trade expectations. The July and November soybean futures contract increased approximately $.25 after the report. The USDA attributed the increased corn ending stock number to a reduction in feed usage. Ethanol usage remained the same at 5 billion bushels.
The new crop corn ending stocks were increased to 1.88 billion bushels, while new crop soybean ending stocks were pegged at 145 million bushels, an incredibly low number for USDA in the May report. The crux of the matter is USDA is predicting a huge corn crop with all the ramifications and soybeans not so much. It will be fascinating going into the June 29th USDA report especially when the market will be trading 22 hours. Standing marketing orders will be extremely important on that day.
In Ontario, it is pretty clear that soybeans are winning the new crop price direction but not necessarily acres. With Ontario’s wheat crop being cut in half because of poor planting conditions last fall about half a million acres are in flux. I believe at the end of the day we will have 2.1 million acres of Ontario corn and 2.7 million of Ontario soybeans in 2012. The increase in corn acres is certainly weighing on new crop prices currently at approximately $4.42 a bushel.
Of course the question is will Ontario farmers get another kick at the can to book higher prices for corn looking forward. My crystal ball is like anybody else’s but surely there is a tremendous amount of production risk going forward. There is also seasonality at play. Needless to say, it’s shaping up as one of those years where if the crop is made by July 4th, higher prices might be in the rearview mirror for quite some time.
However, who knows? Soybeans seem to be king this year, but we all know they need rains in August to make a good crop. We have deferred future spreads in soybeans all the way out to November 2013. We even have deferred future spreads in old crop corn. The problem lies in the market chasing headlines. Our noncommercial speculator friends read the headlines and then head to the door. Much of that has been happening over the last few days.
I haven’t even begun to talk about the slowest moving train wreck in Europe. Yes, it is still there. There is also demand, which could even grow more resilient if the nonfarm economy was better. So there are many factors buffeting markets as we head toward the middle part of May. This North American crop is just an idea right now. It’s not in the bag. Just keep those standing orders ready. There will be more pricing opportunities ahead.