The USDA, More Corn Acres, and Unexpected Events In Japan

GrainsJapanThe USDA released their March 10th supply and demand report this morning and compared to the hype coming up for the March 31st prospective plantings report it was a non-event.   Corn ending stocks stayed at 675 million bushels and soybeans remained at 140 million bushels.  In other words things really haven’t changed that much.  When I first saw the numbers I thought it bearish, simply because the stocks were not cut.  Now, we turn the corner and look toward the March 31st prospective plantings report.

Grains have lost ground over the last few weeks.  This has been happening at a time when headlines have been screaming about high food prices.  It’s always a lot more fun when agricultural commodity markets go up than when they go down.  So the last week has been a bit of a downer, in fact you can see it in some of the farmers I have spoken to at grower meetings across the province.  Our speculator friends have certainly loved the agricultural commodities since July.  With the latest jitters in the energy markets, some funds are leaving for the ride up to $200/barrel oil.

Of course the specter of oil getting to $200 is a panacea.  It wasn’t too long ago in July 2008 oil sat at $147 a barrel, only to be sitting in the $50 range in February of 2009.  So I do not buy the $200 a barrel oil world unless there’s something come along on some unexpected Tuesday.  It’s always those things that come out of left field that shocked the market and at the same time shock farm country.

Case in point is the earthquake and tsunami in Japan.
If you had asked me if unrest in the Middle East and Japan would be a problem for our grain markets last fall, I would’ve called you crazy.  Everything seemed fine.  However, at this point it is the latest thing that came along on an unexpected Tuesday, which you can’t measure.

BBC estimates of insurance payouts at this early stage range from $14.6 billion to $34.6 billion, a huge amount.  In effect, this could be looked at as a huge stimulus, which maybe will jump-start the Japanese economy back into a much better place.  Over the last few years they have had trouble with deflation, a huge savings rate and low economic growth rates.  Now with a catastrophic disaster, there is not much choice other than to spend money and stimulate growth.  However, putting a silver lining on this disaster is a bit of a stretch.

In my mind that might be the factor which influences our grain markets the most heavily in 2011.  Trouble in oil producing regions of the world and Japan seems at the top of the list now.  Needless to say, it probably won’t stay that way. Food demand can be a fickle thing.  Add the noncommercial speculative component output into the mix and you have a witch’s brew that can hardly be predicted.

Looking ahead aside from the political instability in the Middle East and the problems in Japan, the March 31st prospective plantings report will surely be one benchmark on our marketing horizon for 2011.  Last year in the United States, US farmers planted approximately 88 million acres of corn. This year the prediction is 92 million acres from USDA. Yesterday, there were rumors flying around on Twitter that figure was actually going to be boosted up to 94 million corn acres.  Even with trend line yields, it is difficult to imagine US corn ending stocks growing to onerous levels at 94 million corn acres.  However, what if USDA comes out in March and predicts a sub 90 million acre figure?  That seems preposterous to even consider.

So is Hosni Mubarak in the unemployment line.  Next up is probably Libyan leader Moammar Quaddafi.  The problem with these unexpected events is that when agricultural prices are already solidly into “rare air”, these events usually cause bearish surprises.  The political events and natural disasters of the last couple months have surely caused the speculative funds to move slightly into safe havens.

Lost in all this talk is our ability as farmers to produce and produce in a big way.  At every point in history where supply is suspect, we as farmers have answered the call.  In fact even when the supply is not suspect, we answer the call.  So 2011 will probably be no different.  However, the road ahead in 2011 will surely present some interesting curves.