US Acreage Report Deepens Market Uncertainty About Corn Planting

Market participants are left guessing for several more weeks about how much US corn and soybeans are going to be planted this year. The uncertainty comes after the USDA NASS caught the market off guard Friday with a surprisingly robust acreage report and announced a decision to resurvey farmer planting intentions in 14 states—84% of total corn planted area.

The latest report, which is compiled from farmer surveys, showed only a 1-million-acre decline in corn planting to 91.7 million from 92.8 million in the March intentions report. Soybean area, meanwhile, had a record decline in the new report of 4.6 million acres to 80 million. Futures prices reacted sharply with a 4.3% decline in corn and a 1.2% gain in soybeans.

The market was looking for a significant cut in corn area. Planting has been ravaged by flooding, and millions of acres will be prevented from planting as farmers opt to take insurance payouts. But, the timing of the farmer survey, conducted in early June, didn’t capture an accurate view of what is happening on the ground. At the time of the survey, 83% of intended corn acreage had been planted. And given the rapid rise in corn price during May, it is likely that many farmers were hoping to plant more.

The chart on the left above shows the total acreage planted to corn and soybeans since 1990. Note the sharp drop in soybean area expected this year to the lowest in six years. The chart on the right shows how large was the total noncommercial gross short position in corn according to the CFTC. That was followed by a sharp reduction in May as concern over prevent plant grew. (The dark blue line with markers shows the latest year, compared with previous years in light blue.) The noncommercial category covers what most market participants consider speculators.

Adding to the surprise of the latest acreage report—the June 11 WASDE report, which is prepared by the World Agricultural Outlook Board, preemptively cut 3 million acres from corn planting to 89.8 million acres. The June WASDE adjustment was based primarily on the severely delayed planting progress. The question remains which of those acreage numbers—WASDE or NASS—will be published in the next WASDE report, on July 11.

The USDA made the decision to resurvey 14 states for corn and soybean planted area, which covers the vast majority of production. That information will be reflected in WASDE, but not until August. The figures from the NASS acreage report are typically adopted, but given the unprecedented extent of the resurveying, and the preemptive adjustment, it isn’t clear which number the July WASDE will use.

In 1995, a comparable year for wetness and planting delays, the June WASDE preemptively cut corn area and increased soybean area. However, the acreage report that year confirmed the World Agricultural Outlook Board’s instincts by reporting a further cut to corn area and increase to soybean area. This year, with the data from the NASS acreage report likely to change significantly after the new round of surveys, and eventually the Crop Acreage Data report from the USDA’s Farm Service Agency in August, uncertainty will hang over the market for several weeks.

The latest NASS acreage report did reflect the impact of the drastic change in relative prices of corn and soybeans in May. Corn prices made contract lows on May 13 as speculators held record short positions, but the intense precipitation in the Midwest led to a sharp rally over the next few weeks. The soybean-to-corn ratio went from 2.2 to close to 2.0 by the end of May, which traditionally motivates farmers to shift considerable acreage from soybeans to corn.

Importantly, corn prices rallied well above the insurance price of $4 per bushel, calculated as the average closing price for the December futures contract during the month of February. Meanwhile, soybean prices stayed below the insurance level of $9.54 per bushel. Despite the strong incentive to switch area to corn, the NASS acreage report lowered corn area by 1 million acres. This reflects some early realizations that planting would be impossible as witnessed by the cuts in the Dakotas. But, very small cuts to planted area in Indiana, Illinois, and Ohio will be revised lower.

Another surprising aspect of the report was the drop in principal crop acreage, the total of 19 major crops, of 6.1 million acres from the March intentions report and 10.3 million acres from last year. This was led by the previously mentioned record decline in soybeans to 80 million acres, 9.2 million acres lower than last year, amid record high stocks. Prevented area is likely to be large this year, which will heighten uncertainty even after the revised acreage surveys.