Under the Agridome

USDA Report, Argentina and Mother Nature: Just Don’t Plant Too Deep

Thursday, May 17th, 2018

The USDA released its WASDE report today and once again market watchers were scrambling to find a few tidbits of information to make our markets move. I enjoy the USDA reports just like anybody else, but I was cleaning up after finishing planting corn the day before. With cold winds set to blow into Ontario tomorrow with rain, I just hope those seeds in the ground have some chutzpah.

I say that because as any farmer knows getting the crop planted is one thing but getting it above the ground growing is another. In my career, I’ve never had to replant corn, but replanting soybeans is almost an annual occurrence. Despite what the cover crop specialists say, a couple of inches of rain on a seedbed entombed by heavy clay soils usually doesn’t end well. Planting depth is always my kryptonite.

Needless to say, the USDA does not have the same problem, popping up every month with new numbers. In the May report, the USDA is projecting a corn crop of 14.04 billion bushels projected based on its yield of 174 bushels per acre. Soybean production was projected at 4.28 billion bushels with a projected yield of 48.5 bushels per acre. These numbers were really not too much of a surprise. I think we all know, just like my corn in the ground, yield projections at this point are just a theory.

The big production numbers will be coming the end of June when the USDA reports on their actual acreage figures for both corn and soybeans. Many analysts are predicting both corn and soybeans to be above 90 million acres vs. 88 million acres of corn and 89 million acres the USDA previously predicted in their March 29th report. If that happens, and Mother Nature decides to play nice, we can expect more onerous grain stocks to be part of our 2018 future. Of course, we don’t know if Mother Nature will play nice, she certainly has done so the last five years.

That will be key going forward because we know in Argentina this past year, Mother Nature struck back with a vengeance. For instance, we have become used to Argentina projections of 57 MMT of soybeans, but today the USDA put that down to 39 MMT, down 1 MMT from their April projection. At the same time the USDA boosted Brazilian soybean production to 117 MMT. That’s quite the dichotomy between Argentina and Brazil. Just think if that weather pattern had been shifted a little wider North? We might be talking about an unprecedented decrease in the world supply of soybeans. However, again, that’s just a theory.

It’s also a theory that everything will be just rosy here in North America this year, because we have become used to that over the last five years. Remember 2012, when the American Midwest burnt up? I drove from Detroit to St. Louis that August and the American corn crop ended up yielding 120 bushels per acre. I’m not saying it’s going to happen even though the drought graphics this year are much more onerous than last year at this time. What I am saying is as a farmer I’ve had it handed to me more than once. Plant a crop and get it devastated by drought. I never like it, but it can be part of this farming business. As we go into later spring, keep in mind this grain market has become somewhat complacent about that reality coming to fruition.

The USDA pegged soybean new crop ending stocks at 415 million bushels. The new crop ending stocks for corn is pegged at 1.682 billion bushels. At the same time the USDA reduced Brazil’s corn crop to 87 MMT, which is down 5 MMT from their April projection. That is quite a bit of corn that is gone. When you take a combination of good demand and less acres, 1.682 billion bushels of US corn almost seems like a breath of fresh air. Dial in that 2012 yield though of 120 bushels per acre and it gets real ugly fast.

In Ontario and Qu├ębec we’ve had a bit of a problem getting the crop in the ground and with weather turning cold and wet this week that might remain a problem. However, 2.2 million Ontario acres of corn seems likely if we have any decent weather. With another record yield close to 180 bushels per acre last year in Ontario, that is not too much of a surprise. Flat prices of $5/bushel and above in Ontario helps corn acres. Its productivity is just so much more than soybeans in Eastern Canada.

Last week I said have those standing grain marketing orders ready. This week I’m saying the same, but keep in mind the reduced new crop corn stocks predicted by the USDA. Keep in mind the seasonal nature of our grain markets. We are walking through a time in the next eight weeks, where generally we see some highs. However, just like in Argentina, the weather variable holds the key. It doesn’t always go our way. Like in 2012, some of us missed that drought and sold $8 corn. Others got 40 bushels per acre.

The challenge of course is to be uber vigilant managing our price risk over the next 8 weeks. July 4th might be a firecracker for markets, or it might represent a time where the corn crop is made, settling us into that long trudge into 2019, where we hope for a better day. Some of us might regret we didn’t sell when so much risk was on the table.

However, first things first, I’ve got a crop to plant. That’s where we collectively throw millions of dollars into the ground hoping something will grow. This business is not for the fainthearted. Make sure you don’t plant too deep.