The USDA Prospective Plantings and Quarterly Grain Stocks Report were released today, March 31 and are based on information as of March 1, 2011. The prospective plantings report fell within pre-report ranges for corn, soybeans, and wheat and below expectations on cotton. On the average, corn acres were 380,000 acres higher than the average pre report guess; cotton 630,000 acres less than the average guess; soybeans 290,000 acres less than the average pre report guess; and wheat 730,000 acres higher than the average pre report guess. The quarterly grain stocks were reported to be smaller than expected for corn and soybeans and higher for wheat. Together, these reports are considered bullish for corn, cotton, and soybeans and bearish for wheat. Wheat is expected to trade with corn and soybeans. With tight stocks and the prospects that USDA will tighten stocks further for corn, cotton, and soybeans, market attention will focus on the weather, first planting and then growing.  The tables below summarize the Prospective Plantings report in the U.S. and Tennessee and the Quarterly Grain Stocks report.

Planting intentions for the most part were within range to pre-report guesses. Corn planting intentions were 92.178 million acres, up 3.986 million acres from 2010, but only 340,000 acres greater than expected. Cotton intentions were 12.566 million acres, 1.59 million acres more than 2010 and 630,000 acres less than expected. Soybean planting intentions were 76.609 million acres, down 800,000 acres from 2010 and 260,000 acres less than expected.  All wheat acres were estimated at 58.021 million acres, 4.4 million acres more than 2010 and 730,000 acres higher than expected.  In Tennessee, acreage intentions followed the direction of the trend but are more exaggerated than nationwide. In Tennessee, corn acreage is up 15.5% compared to 4.5% nationwide; cotton up 20.5% compared to 14.5% nationwide; soybeans down 6.2% compared to a 1% decline nationwide and wheat up 38.5% compared to a nationwide increase of 8.2%.

These are intentions as of the first of March. Acreage will change over the next two months as producers respond to price changes and maybe more importantly, planting weather and conditions. The June 30 Acreage Report should more accurately estimate planted acres.

The market was probably anticipating the Quarterly Stocks report as much as it was the planting intentions. Less corn and soybeans stocks were reported than the trade had estimated, resulting in a bullish report. Corn stocks were 167 million bushels less than the average pre-report guess, suggesting that the rate of use has been greater than USDA earlier estimated, particularly for livestock feeding and ethanol use. USDA may lower the ending stock projection for this marketing year due to this lower than expected stocks. Corn export sales released today were a marketing year high reflecting what some think are sales to China. Soybeans stocks were 50 million bushels less than expected, which could make ending stocks even tighter in the next USDA report. Export shipments and crush must slow dramatically in the short term to meet current USDA projections. Export sales released today were again slow, which could be evident of some price rationing. Wheat stocks were 26 million bushels higher than expected.

In the following tables, broken down is the supply and demand balance sheets based on planting intentions. The Expected scenario is the estimated acreage based on planting intentions. Usage and yield projections are from the 2011 USDA Outlook Forum. The 2010/11 column is from the March 10, 2011 USDA Supply & Demand report. The next report will be released on April 8, so I would expect those numbers to be changed.

Stocks/Use                                  5%                                6.6%             

Yields will be the key to whether stocks will tighten further in 2011/12, remain constant, or build. To just remain constant or build at the prospective planting acres and estimated demand, yields will have to be at least 159.17 nationwide. Over the last five years the lowest nationwide corn yield was 149.1 bushels/acre and the highest was 164.7 bushels/acre with the five year average of 154.2 bushels/acre. Unless there is considered perfect to near perfect planting and growing conditions, the corn market should remain volatile until a clear indication of yield is seen. Over the next few months, planting weather may bring concerns whether all the intended acres will get planted. For instance, the Dakotas have intended 1.3 million acres more in 2011 than 2011 and with flooding and wet conditions they will be hard pressed to get it all in. That should bring additional pricing opportunities for forward pricing as well as putting in place a put option strategy. Neutral corn planting intentions coupled with lower than expected corn stocks has taken on a bullish tone with May corn up 30 cents at mid day at $6.93 bushel. September is up 30 cents mid day at $6.55 bushel with support at $6.10 and resistance at $6.78. During the week, prices dropped through my $6.38 trailing stop, pricing another 5% to 45% overall. I would still use $6.38 as a trailing stop for additional pricing. Over the last 20 years the average difference between corn acreage in this report and the final estimate is a 1 .14 million acres with the smallest difference being 32,000 acres and the largest difference of 3.84 million acres. The prospective plantings estimate has been below the final estimate 8 years and above the final estimate 12 years.

   Stocks/Use                                           9.8%                                     12.4%            

Planting intentions for cotton acreage came in 635,000 acres less than expected, but close to the National Cotton Council January survey estimate of 12.5 million acres. With prices having jumped from 2010 and having increased at a greater rate than grains since January, it is a little surprising than intended acreage was not at least in the 13 million acre range. However, many former cotton producers have shifted to grains and to get back in would have required an additional investment in equipment. The recent Cotton Ginning Report had production in 2010 220,000 bales less than USDA estimates. This would tighten up stocks more than what is listed in the table. Some analysts also look for usage to increase, again further tightening stocks in future USDA reports to possibly 1.3 million bales for 2010/11. It is possible, but doubtful that USDA will lower stocks for the current marketing year to that level. Prices may have increased enough to ration usage and keep stocks in the 1.7 to 1.9 million bale range. As in corn, yields will be the key to ending stocks along with how many acres will be abandoned. These unknowns will keep volatility in the market. Using the USDA Outlook Forum usage numbers, the intended acres, and average abandonment a yield of 793 pounds nationwide will be needed to just maintain the stocks at 1.9 million acres, a historically tight number. The five year average nationwide cotton yield is 820.8 pounds/acre with a high yield of 879 pounds and a low yield of 777 pounds. Looking back at years when Texas was dry and had high levels of abandonment, the nationwide average yield was 801 pounds. Will demand keep the pace of 2010/11 or will we see a drop off from the results of high prices? If conditions stay dry in Texas, I would expect an increase in planted acreage that would be reflected in the June 30 Acreage Report. I would also expect a higher than average abandonment level. December cotton traded mid day at 131.50 cents per pound, with support at 120.95 and resistance at 138.13. On my comments I am 40% forward priced and would use a trailing stop of 123.44 cents for additional pricing. Put options while expensive may offer an acceptable floor and still leave room for the upside if yields are down and abandonment is high. It is always possible that we could see current price levels start to curtail demand, building stocks. Prices will be volatile. Over the last 20 years the average difference between cotton acreage in this report and the final estimate is 463,000 acres with the smallest difference being 6,000 acres and the largest difference of 1.32 million acres. The prospective plantings estimate has been below the final estimate 11 years and above the final estimate 9 years.

Planting intentions and quarterly grain stocks for soybeans are bullish. Grain stocks would indicate USDA will need to lower ending stocks for the current marketing year in the April 11 report. Without a drop in ending stocks which becomes beginning stocks in 2011/12, intended acreage is not enough at trend line yields to build stocks and at estimated usage stocks would be reduced to uncomfortable levels. With current intended acreage and estimated usage, nationwide yields would need to be 43.9 bushels/acre. The five year average yield is 42.9 bushels with a high of 44 bushels and a low of 39.7 bushels. A few things to look for: acreage that does not get planted to corn because of wet conditions will go to soybeans increasing supplies; there is some indications that prices have gotten high enough to slow down demand both in the crush and exports. If that scenario develops, supplies would be increased and demand reduced and stocks would build. The soybean market may want to insure that scenario with strong prices until acreage is determined and demand projections for 2011/12 are more fully developed.  The nearby May Soybean Futures at mid day is up 39 cents at $14.11 bushel. November soybeans are trading at $13.91 bushel, up 27 ½ cents with support at $13.34 and resistance at $14.37. I would not rule out a run at all time highs. I am currently 50% forward priced and would wait until late spring –  early summer before forward pricing more. Put options are worth investigating. Prices could go higher in the short term but lose steam if planted acres are higher than intended and demand drops off more than expected. The strength or weakness of the Dollar could also influence the markets. I don’t see prices dropping back to year ago levels, but we could see weakness going into harvest. A lot of ifs and unknowns, but that is why we look at options as a price risk management tool. Over the last 20 years the average difference between soybean acreage in this report and the final estimate is a 1 .152 million acres with the smallest difference being 25,000 acres and the largest difference of 2.582 million acres. The prospective plantings estimate has been below the final estimate 13 years and above the final estimate 7 years.

             Stocks/Use                            34%                                           31%                                  

Both intended wheat acres and grain stocks were bearish in today’s report. However, wheat at times has a tendency to trade with corn and soybeans and that seems to be happening. Also, dry conditions persist in the Plains and could have a strong impact on yields and abandonment. Under expected assumptions with intended acres and demand, ending stocks in the 2011/12 marketing year would drop from 2010/11. However, stocks to use would still be at a fairly adequate level of 31%. Wheat is a food commodity so foreign production will have a strong influence on prices. July wheat futures traded mid day at $8.01 ½ bushel, up 38 cents per bushel with support at $7.42 and resistance at $8.32. I am currently 50% forward priced and would wait until further in the spring before considering pricing more.