Do you feel duped? Or do you just feel a little stupid? If you don’t know what I am referring to you must’ve missed the June 30th USDA planted acreage report as well as the quarterly stocks report that came out the same day. With the USDA lowering 2010 corn acreage and reducing quarterly stock significantly, it looks like maybe all those bushels in the 2009 corn crop weren’t there! It looks like Lanworth, the private resource intelligence firm, which never did believe the 2009 corn story, nailed this one down.
The USDA shocked the corn market on June 30th by putting the planted corn acreage number at 87.872 million acres. This was below the lowest trade estimate of 88.10 million acres. That was quite a shock to the market but when the USDA came out and said there was 4.310 billion bushels in ending stocks well below the lowest estimate of 4.459 it was like a slap in the face to market bears. The bulls blew through the barn door and corn rocketed up almost $.40 in two days. It was almost surreal.
Looking back, maybe we should have known. Maybe we should have known that the test weight issues in the 2009 corn crop were real. However, it seemed like the USDA didn’t believe that and when they came out with their huge yield figure on January 12th, the market was caught the wrong way and corn prices have never recovered from that day. In many ways the USDA gave a “head fake” to the market sending it one way when they did not necessarily know if the corn was there. They don’t measure test weights. Needless to say, if you have read this column since then you will know that I’ve always said that the USDA sets the goal posts and they do whatever they want with them. In this case it looks like on January 12th they moved them, in the meantime told everybody that’s the way it is and now on June 30th for whatever reason they decided to move them back. So what for all that old crop corn that was sold in between those dates. In many ways it’s unbelievable.
I am quite a believer in the DTN six factors for marketing our crops. I watch the market daily and hourly in the wintertime to simply get a tangible taste of what is going on. With that I always check the futures spreads and follow USDA reports like a fox. So on June 30th I was sitting in front of my computer waiting to see the results just because it was a major market mover. I was looking for a big Corn number especially with our early spring weather and good pricing opportunities. I had read all the pre-report estimates and bought into what the USDA had said. What happened next was quite a slap in the face.
The USDA numbers came across my Twitter feed first. When I read them I found it hard to believe US farmers had planted 1.1 million less corn acres in the March 30th USDA report. Being on Twitter, I knew I could react immediately so I tweeted the statistics and said the corn number seemed low. I was a bit nervous publicly tweeting that, because I’m a farmer and agricultural economist first and a market analyst down the list somewhere. Then in fact I realized it was really low and I began checking my numbers on the paper in front of me. I started to realize this was a bullish slap in the face to the corn market and everything I had been led to believe since January 12th must not be totally right. Soon after, all our trusted analysts chimed in with the same thing. USDA had changed the game and now we were in an extremely tight situation in the corn complex.
But still, with future spreads strong aren’t we in a bearish market situation? That is the question I asked DTN senior analyst Darin Newsom immediately after the report in his online webinar. To me, things just don’t change that fast where one day it is bearish and the next day it is extremely bullish. Doesn’t that show up gradually in future spreads? The answer of course is yes, but in this case is not so clear. Futures spreads are changing as I write, but that question needs to be answered. It almost looked as if the people who were buying the futures got duped too.
USDA’s Chief economist Joe Glauber exclaimed after the report, “I think we have been in a very tight corn supply frankly.” Oh yeah? Since January 12th we have all been led to believe that was not the case because USDA numbers said it wasn’t. I told all my readers and listeners that the USDA sets the goalposts and they can do anything they want. The unfortunate part is, in this case, I was right. In the corn market on January 12th we were led to believe one thing by USDA and in the June 30th report they essentially canceled the January 12 report out. In the meantime millions of bushels of old crop corn was sold at lower prices. It all doesn’t quite add up, and that’s a big problem.