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July 1, 2019

Skeptical incredulity, high price volatility in wake of a bizarre USDA corn planting estimate
 
Can a stunningly large miscalculation = a good buying opportunity?  Expect nervous investors, skittish price movements until market confidence in its "official" information is restored.
 
By Eric J. Brooks

An eFeedLink Hot Topic
 
 
 
A surreal sense of deflation gripped world grain markets after the USDA shocked everyone from speculators to feed buyers with its US corn planted acreage estimates. It's no secret that record, non-stop flooding put US corn farmers months behind their normal planting schedule –but the USDA's late acreage estimates have defied 100 days of consistently bad news.
 
With fields staying persistently water-drenched, only 83% of the crop was planted by the start of June, compared to the 99% norm usually seen on that date. The analyst community projected that even if some farmers played "catch up" and risked late planting, the acreage would be in the 85 to 87 million acre range at most –with no idea when the first frost would hit corn planted two months late.
 
Instead, the USDA estimated planted acreage of 91.7 million acres –even more than the 89.1 million acres planted during last spring's far friendlier growing weather1 On one hand, this stunned markets: From above US$4.80/bushel earlier in June and opening at US$4.59/bushel, CBOT corn crashed to US$4.315/bushel by the end of the day of this report's release, falling a steep 6%.
 
On the other hand, it is ludicrous to assume that with a huge proportion of farm fields too flooded for planting until June 10 somehow more acres were planted with corn this year than last year. This is not just my opinion but that of countless industry analysts.
 
Advance Trading's chief Brian Basting notes that this survey was taken in the first weeks of early June and based on planting intentions –not actual recorded acreage. Thereafter, planting weather deteriorated and "some of those states had [weather-related] challenges after the survey was taken."
 
A/C Trading presidenet Jim Gerlach stated "Indiana's corn acres are up 150,000 [acres ] and Michigan is unchanged ... You just have to drive around here and you'll figure out real quick that that's not right. This really makes the USDA look incompetent." He advised, "Sell corn at your own peril and buy beans at your own peril based on today's data…. acreage numbers will be thrown in the garbage can."
 
Even when analysts appreciated the USDA's rationale for the high estimate, they disagreed with the agency's conclusions. The Zaner Group's chief agricultural strategist Ted Seifried understood that due to China's 25% import tariff many Midwestern farmers wanted to avoid planting soybeans at all costs. Especially given the recent high corn prices. Even so, Seifried concluded that "Guys really wanted to load up on corn. Weather since the survey was taken probably didn't allow as much corn as what we were hoping to plant; and may have forced us to plant more beans."
 
--In other words, the USDA's late June corn acreage estimates are based on early June planting intentions, when corn prices were at their highest level in years –but in the weeks that followed, the weather simply did not co-operate with their planting intentions. When the crop growing window narrows to a mid-to-late June start, many parts of the corn belt only have enough time to grow faster-maturing soybeans.
 
As news agencies who survey the "consensus opinions" of traders and other industry stakeholders know, after real supply and demand, it is the expectations of traders and investors –not government reports–that will drive prices over the long-term.
 
Daniels Trading commodities broker Craig Turner reflected consensus opinion, stating: "Trade isn't going to believe 91 [million acres] for corn... We should expect all of the numbers to come down some. Everyone is shocked about the corn number."
 
In response to the strong controversy generated by this report, USDA crops branch chief Lance Honig stated on twitter that his agency would "conduct a reinterview survey in 14 states" and release the results in August.
 
For now,  not only have prices been temporarily deflated but the market's mood has also been changed: Grain markets will now focusing far more intensely than usual on any news that disproves or proves these USDA's estimates –which are viewed with a great deal of skeptical incredulity.
 
What does all this mean for corn in the coming months? On one hand, given how the USDA's report runs contrary to both mid-June weather conditions and the personal observations of ground-level observers, our corn growing forecast remains unchanged: No more than 85 million planted corn acres, a crop yield in the 150bushels/acre to 158bushels/acre range and harvest of 322 to 341 million tonnes. A corn price in the US$5/bushel to US$6/bushel range by late Q4.
 
On the other hand, the cloud of information uncertainty will create a more volatile price path for corn, no matter which direction its prices and supply estimates go. The earliest we can expect volatility to clear up would be in early August, after that month's USDA WASDE report, acreage and corn yield estimates are released, hopefully with credible revisions that concur with ground-level observations.
 
While information uncertainty has multiplied the risk level but based on ground level information, this might be your last chance to buy corn near US$4.00/bushel for quite some time. If the USDA is badly mistaken and its acreage estimate turns out to be grossly over-optimistic, then it just created an excellent corn buying opportunity.
 


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