Taking the Goalposts Away: USDA Keeps the Score

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It was a stunner!  You might even argue that it was a game changer with regard to agricultural markets for 2010 and the year is only 14 days old.  When USDA came out on January 12th and said that we will have 13.151 billion bushels I could hear Ontario grain merchandisers falling off their chairs.  In fact when I got up off the floor, I thought I must have been dreaming. What was up with this?

If you missed it and if that was a case you’re probably not reading this column.  USDA came out with their 2009 corn production figure at 13.151 billion bushels of corn versus their December number of 12.921 billion.  The USDA figure was a whopping 331 million more bushels than the average pre-report trade estimate.  I was expecting a further cut in corn production based on the terrible quality issues as well as the 600,000,000 bushels apparently still left in US fields.  As a caveat, the USDA said that they would re-survey several areas like Illinois Wisconsin Minnesota and North and South Dakota.   It was almost like “we need a corn number “so let’s throw the dart at the dart board.

I know. I’m being a little silly, but that is surely how many farmers felt across the greater US Corn Belt.  I talked with some Ontario corn merchandisers this week leading up to my Market Trends report for the Grain Farmers of Ontario and they felt largely the same way.  This USDA corn number came right out of the blue.  At one analyst told me, “they must want to sell more soybeans before the Brazil crop comes on.  Something smells here. ”

As many of you know my real calling was to be a professional basketball player.  My problem was charitably I don’t have the body type.  One of the greatest basketball players ever to play the game was a man by the name of Bill Russell.  He was the center as well as player coach of the eight-time NBA champion Boston Celtics during their title run of 1960s.  At the time many opposing players and fans constantly lamented the Celtics success.  However, Bill Russell had a common refrain for their taunts. He always said, “that’s why they keep score. ”

The point being the USDA is Bill Russell in this case.  They are the ones who have been predicting crop estimates since 1933 and still after all this time they are the benchmark that non-commercial grain traders and hangers on look to.  They have the goalposts and they kicked the ball, and then took the goalpost with them, seemingly with everybody on the sidelines saying, “what happened?”  So on we go and despite how difficult it is to believe that this number has any credibility, it is what it is.  Predictably corn was down the limit and other grains and oil seeds followed.  It was like the market suddenly fell off a cliff and it’s like somebody push them off, the USDA.

It surely has made grains a lot cheaper.  Sure we all had a chance to contract early but who at the time would know if that was right.  The reason that some farmers are so upset is this latest move by USDA is it almost looks like a deliberate attempt to either manipulate the market or just do things the way they always have.  We’ll figure things out later, maybe in the March 10 USDA report.  Of course, that’s all conjecture and it will certainly add to the rumors.  Needless to say, cheaper grain spurs demand.

Of course different opinions about this abound.   You might remember a few months ago I have been documenting how Lanworth, a private analytical firm in Illinois, which uses satellite imagery, ground verification and knowledge of historical crop rotation was weighing in with different yield numbers.  For instance I had told you that Lanworth based on their system was looking at a US corn crop of about 12.3 billion bushels.  The last time I checked Lanworth was sticking to their guns and believing their numbers.  The question is, as I said last fall, who is right USDA, Lanworth or me hoisting a dart toward the proverbial dartboard?

For Canadian corn producers it’s been a dog’s breakfast.  In Manitoba, Québec and central Ontario corn has big quality issues with large discounts.  Considering a $.97 Loonie and you’ve got a bad year no matter what USDA does.  The only problem is USDA did do something and with its re-survey in the mix, market information and market reaction will only become murkier.

Remember what Bill Russell said, “that’s why they keep score. ”  Also remember this, “it is what it is “.  If USDA says it’s out there, maybe it is and maybe on March 10th we’ll find out if there’s even more than the 13.125 billion bushels seemingly nobody believes.   The corn future spreads looking ahead are strong.  That means we’ve got relatively long term bearish fundamentals and too much corn for the demand.  The score: USDA 1, Corn farmers zero, and they’ve taken their goalposts at least for the next two months and gone home.