June 30th USDA: Shifting Those Goalposts Once More

Moving GoalpostssIt has certainly been a tough day in the grain markets.  In fact it was a record setter.  This morning the USDA rocked the grain world when it essentially put everybody on their head, boosting corn acres, corn stocks when everybody seemed to be looking the other way.  Through it all, a farmer anger rose to crescendo pitches.  Some think that the USDA has lost all credibility.  I heard one market analysts say, in his 30 years trading grain; he has never seen a USDA report as bearish as this one.

Futures prices reacted by plummeting down.  In fact all the corn futures months were down the limit, except the nearby July, which was down $.78 into delivery.  It was a bloodbath as market bulls fell through the trap door replaced by voracious bears that suddenly had corn everywhere.  Where once the USDA took away corn bushels in 2010, now they suddenly turned up again.  So if you ever wondered where the corn went last year, shazam, it’s finally showed up.

I’m referring to the quarterly corn stocks, which USDA had measured on June 1, at 3.67 billion bushels.  This was about 370 million bushels more than the average trade estimate.  Suddenly old crop corn seemed to be everywhere.  The soybean stocks were also raised to 619 million bushels from 596 million, the average trade estimate.  However, it was the corn number that was the most shocking.  It’s pretty obvious now that $7 and $8 corn hit demand hard.

As shocking as the increased old crop corn stocks were, the corn acreage number was a capper.  It pegged 2011/12-corn acreage to be 92.3 million acres, an increase of 1.6 million acres over their June 9th estimate of 90.7 million acres.  Think of that for a few minutes, planting all that corn in that short of time.  That’s one reason why farmer anger in the moments after the report released was so high?  How does that happen?

Total corn and soybean acreage is set to come in at 167.5 million acres, the largest ever planted.  Soybean acreage is down from the June 9th estimate and it is completely obvious that it went to corn.  So corn obviously gained at the expense of other crops like canola, oats, spring wheat and other things.  At the end of the day, it is what it is.  Regardless of any prejudices you may have regarding the USDA, they set the goal posts and these are the numbers that we will be working with until October 2011.

Some of you are still spinning on this news.  Strangely, the USDA announced today that they would re-survey Montana, the Dakotas and Minnesota in late July, releasing these numbers in the August crop report.  Interestingly the Eastern Corn Belt where we had all the wet weather and planting problems this past spring is not part of the re-survey.  So for some of you who believe this number will be adjusted, there is hope.  In my view, there is little hope of that acreage number being adjusted; in fact the USDA may increase it later.

It was a very bearish report for grains and corn especially.  Sure, at first glance it doesn’t make much sense how we can gain so many acres between June 9 and June 30 with all the production problems we had.  The cash basis for old crop corn does not support the existence of that additional 370 million acres that seemingly came out of nowhere.  So we move ahead with everybody pointing fingers.

I had a conversation the other day with a grain buyer who told me he had recently made large purchases of corn at $8 a bushel.  He said that the seller of the corn have much more physical inventory but told him he was going to wait until corn hit $9.   It seems almost like science fiction to be even writing those words.  A year ago today, we were bouncing off lows with corn at about $3.50 cash in Ontario.  Let’s put it all in perspective.  It has been a great run.

The question is now, is the great demand driven corn market over?   I don’t know.  You might make the argument that this is the first volley in end-users winning that war.  Demand has obviously been curtailed according to these June 30 USDA numbers.

So as we move ahead it is a new day for grains.  The gnashing of teeth over these USDA numbers will continue.  Despite that, it is my experience that the USDA always wins these arguments.  Always remember my goal posts analogy.  USDA keeps a score, always.  It might not seem right all the time but at the end of the day, it is what it is. That’s the reality of where we find ourselves now moving forward.