Overall, it appears that few of the Corn Belt states lost nearly as many corn acres to prevent plant or to soybeans as many expected. Instead of 2 million acres or more, Iowa and North Dakota each planted 200,000 acres less than expected back in March and Minnesota planted 300,000 acres less than expected. Nebraska planted 300,000 more acres than expected back in March, offsetting part of these decreases. Other Corn Belt states generally saw no difference between March and June acreage forecasts.
Along with the Acreage report last Friday, USDA released its quarterly Grain Stocks report. That report indicated that June 1 corn stocks totaled 2.764 million bushels, 91,000 bushels less than the average expected (Table 2). Soybean stocks, at 435,000 bushels, were also below expectations. These numbers were both quite friendly to old crop prices and underscore the tightness in old crop supplies. On Friday, July corn closed $0.12/bu higher and July soybeans closed $0.16/bu. USDA has been forecasting 2012/13 corn ending stocks to be 769 million bushels on August 31, 2013. If realized, that would mean that demand in the June-August quarter would have to be less than 2 billion bushels, which is a level we haven’t seen since 2003 (before ethanol demand). Thus, it appears that prices for old crop corn and soybeans will stay relatively high through the summer – especially compared to new crop prices. Bull spreading (buying nearby futures and selling deferred) was a noted feature of the futures trade on Friday following the bullish Grain Stocks report and bearish Acreage report.
Corn Sellers Recommendations:
- The bearishness from last week’s reports will likely influence prices yet this week. However, futures will eventually begin to refocus more on weather. At this point, forecasts for the next two weeks look generally favorable across the Corn Belt.
- At this point, producers likely only have small increments of old crop corn remaining. It shouldn’t be necessary to make ‘panic’ sells after these reports, but do be ready to price remaining bushels on any weather problems that develop. Every day that passes is one day closer to harvest. The spread between old crop July futures and new crop December futures is now $1.68/bu. The cash price spread is even greater – almost $2/bu in eastern South Dakota. Even though this year’s new crop will be later than last year’s, at some point the futures spread and basis changes will converge between old crop and new crop.
- By now producers have likely priced 5-25% of insured new crop bushels. Continuing to make pre-harvest sales through the summer could still be profitable, even after the sharp losses last week. For example, breakeven budgets two months ago likely were more conservative on expected production. So, for those who have a good crop and can reasonably increase their expected number of bushels produced this year, the breakeven price (in $/bu) decreases. That, combined with grain already priced at profitable levels, can help lower the price needed on remaining bushels to generate a positive profit margin.
- Finally, sellers should continually update their expectations for the new crop pricing opportunities. While anything is possible in global commodity markets, almost nothing at this point would suggest the possibility of $6-8/bu corn prices like we saw last year. Instead, making sales in the mid-$5/bu range may appear more likely at this point.