June 30 USDA Report

The USDA released its much anticipated June 30 stocks and planted acreage report and the results led to drastically different reactions. Corn closed 14 cents lower while soybeans closed 40 cents higher.

Corn planted acreage came in at 94.148 million acres, much higher than the average trade estimate of 92.781 million, and well over the 88 million acres we planted last year. Soybean planted acreage was reported at 83.688 million acres, only slightly behind the 83.947 million average trade estimate and above 82.7 million planted last year. Grain stocks were bearish across the board with corn at 4.722 billion bushels, 202 million bushels above the average trade estimates. Soybean stocks at 870 million bushels were 39 million above expectations. Both of those figures are above last year’s reported stocks figures.

The fear this report put into the corn complex is that with a reduction in feed usage this year (which is certainly a possibility as the USDA feed numbers have been suspected of being too high in the past), we could very well be looking at a carryout over 2.5 billion bushels, more than 2.5 times what the trade typically considers “comfortable”.  A carryout of that size would historically be associated with $3.00 futures during harvest. The strength in the US dollar due to the weakness of the British Pound as a result of the United Kingdom exiting the European Union hasn’t done the commodity market any favors.  A strengthening dollar makes the US less competitive in the export market and the only way to combat that is to lower prices to become competitive again. Immediately following the announcement of the Brexit, the US dollar surged higher. However, since then, the dollar has started to fade lower as the knee-jerk reaction appears to have been overdone. About the only market that Britain would compete with when looking at our commodities, would be in the feed wheat department so pressure directly from their cheaper supplies has a benign effect on corn and soybeans.

The bullish reaction in the soybean rally was a bit of a head scratcher. Nothing in the report screamed “buy” to me. However, perhaps the traders are either somewhat fearful of the upcoming crucial month of August, or they’re making sure that every acre of second-crop soybeans that follow winter wheat harvest will be planted, or perhaps both. When soybean acres are short, picking up double crop acres is about the only hope to get additional acres this time of year. No doubt soybeans are the grain market darling, until we get confirmation of a low stress month of August for soybeans.

As of this writing, the 6-10 and 8-14 day forecasts turn very dry and quite hot for the Midwest. Weather markets are very fickle and can completely flip to the other side, but remember you can’t have a drought if it keeps raining! The bearish reaction in the corn complex should have resulted in more losses, in my opinion. The trade missed the corn acreage number by nearly 1.4 million acres and yet we were only down 12 cents in the December contract. This tells me the trade had anticipated some bearish numbers ahead of the report, which is also indicative of the 65 cent selloff from the highs set on June 17. It will be difficult to see a rally in the corn complex barring any sort of sudden shift in weather forecasts. Corn development looks to be safe from extreme weather conditions and now the trade will watch for August to see if there is any sort of threat for the soybeans

Informa released their updated production and acreage estimates on July 1. They pegged U.S. corn production at 14.531 billion bushels versus the current USDA estimate of 14.430 billion. They pegged soybean production at 3.893 billion bushels vs. the current USDA estimate of 3.8 billion. Informa also raised world production 3.3 million tons and 1.2 million tons for corn and beans, respectively. This was mostly due to increases in the U.S. crop.

To reiterate, we are obviously right in the middle of a weather market, which can shift multiple times a week, and quickly. We are projecting more than adequate carryout levels for both corn and soybeans, so barring any sort of a major weather shift in the near future, commodity prices appear to be facing an uphill battle. However, weather is always the ultimate trump card for all grain markets!

June 30 USDA Report