Risk Management Never Grows Old: March 31st Was Just Another Day

Moving Goalpostss      It is a gift of growing older then I get perspective.  You might remember a column I wrote about this earlier.  I was interviewed today by a local publication about the farm protests which took part all across Canada 10 years ago.  Talking to the local reporter was introspective.  He wanted to know what all the fuss was about and had the problems of Canadian farmers change now versus then.  Of course, he wasn’t there 10 years ago so is left of this old guy to fill him in.  Simply put, I’ve been around this agricultural business for a long time.

Remarkably, that is helpful when I watch USDA grading report numbers being announced.  The March 31 USDA report is always a litmus test for our grain markets.  It is almost the starting gun on the new crop year.  So when the USDA said that US farmers would grow 93.6 million acres of corn this year, I was surprised but not dismayed.  The average trade guess had been around 90 million acres.  When the 93.6 million acres was announced you could almost feel that trap door opening underneath you.  However, it was not the first time I have felt that.

I used to have a saying about the USDA.   When I first started analyzing their grain reports quite a few years ago, we would often see limit moves.  Sometimes these limit moves would have the market lockdown all day.  I’ve even seen the market locked in limit for a couple days.  That was before live trading, which is since changed the dynamic of the trading environment.  The river is a wider than it used to be and that in day volatility tends to be muted as traders tried to digest the information in real time.  Needless to say, often some of these market factors, which would move prices significantly on report day seemed completely surprising.  It was like they came out of nowhere.  I’ve often made the statement that the USDA moves the goalposts to reflect those changes.  March 31st was another one of those days.  When 93.6 million acres of corn was announced, the goal post got shifted 20 yards down the field.

DTN Senior Analyst Darin Newsom said in his post USDA review that all one could do is sit back and say Wow!  He said, and I quote,” sometimes a number can be so preposterously out of line that it leaves all but traders hyped up on adrenaline speechless.”  From Ontario perspective it dropped old crop prices about $.30 in one day.  However, with the goalposts being moved down the field another 20 yards in an 110 yard Canadian football league field, it’s going to take some real work to get back.  La Nina needs to make an appearance.

I say that because the optics of a 93.6 million acre crop are enormous, based on average yield going forward.  I know that mother nature might come in and impact that back down to earth, but if she takes a year off, we are going into price territory not seen in quite some time.  In fact, if we have a rerun of last year with those acres we could have the corn ending stocks figure of over 2.7 billion bushels.  It’s like I was dreaming and then suddenly I woke up and it was 1995 again.  I don’t see any ethanol boom on the horizon this time.

On the contrary the soybean number of 82.2 million planted acres was less than expected and winter wheat also dropped 9% from last year.  Soybeans and wheat did finish positive on the day.  Corn futures got slammed.  It was just a very tough day.

However, I’ve seen it all before.  I’ve seen January USDA Final reports when millions of bushels of corn disappear.  I’ve seen planted acres change in the same report, long after those acres were harvested.  I’ve seen bushels come out of the blue.  I know the drill.  You should never be complacent with the USDA.  Surprises happen, but you should never be dismayed.

In a mock supply and demand table of 2016/17 put together by Darin Newsom today in his post USDA webinar, he gave a total corn supply next year at a whopping 16.489 billion bushels based on a beginning stocks of 2.077 billion and 40 million bushels of imports and production of 14.372 b bushels of corn based on 93.6 million acres. It’s scary stuff for sure.  It means corn prices headed south for many years, but will it happen?

I doubt it.  I’ve been here before when the world was so awash in grain, there was no hope.  The weather didn’t cooperate with that thesis.  The USDA moves the goalposts, but sometimes its both ways in one year.  There is so much uncertainty in the grain market ahead.  March 31st was just
another day.