USDA released the June 30 Acreage Report and Quarterly Grain Stocks Report today. Both of these reports are based on conditions as of June 1.The acreage report has been called bearish for corn, cotton, and wheat and neutral to bullish for soybeans. At least from an initial glance, there were several surprises in this report. Corn acreage at 92.3 million acres was 1.6 million acres higher than the average trade guess and higher than the highest estimate, but close to the March 31 planting intentions. This would be the second highest acreage since 1944, only 2007 would be higher. Delayed planting conditions and flooding had been expected to take a bite out of the intentions, but initially it looks like producers planted corn later than normal due to a perceived profit advantage. Cotton acreage at 13.7 million acres was 440,000 acres higher than the average trade guess, but was within the range of guesses. The more important number in cotton to watch will be the level of abandonment, particularly in Texas and Georgia where drought conditions have decimated the dryland crop. Some of the increase in acreage came from Texas where cotton was planted into failed or abandoned wheat. Soybean acreage at 75.2 million acres was 1.3 million acres less than the average trade guess and less than the lowest trade guess. With the increase in corn and cotton acres, this seems a reasonable assumption. Wheat acreage was within expectation and at 56.4 million acres were 300,000 higher than the average trade guess. These acreage numbers are the ones at least for now that the market will be trading. Acreage changes since June 1 have occurred, but will not fully come to light until a firmer number comes probably in the September USDA report. Acreage then will be based from FSA certified acres as well as surveys. USDA did announce that at the time of the acreage survey, a large percentage of acres remained unplanted in Minnesota, Montana, North Dakota, and South Dakota. To better assess planted acres, NASS will resurvey these states in July and if the collected data justifies any changes, updated estimates will be in the Crop Production report released on August 11.

There were surprises all around in the Quarterly Grains Stocks Report as it is called bearish for corn, soybeans and wheat. Based on the stocks report, it is expected that the July USDA Supply & Demand report will reflect increased carryovers for corn, soybeans and wheat ending stocks. Corn ending stocks were reported 370 million bushels higher than the average trade guess and higher than the highest trade guess. This is a little puzzling as end users have had to bid up offers through a stronger basis which has given the impression that supplies were tight. Based on this stocks data, ending stocks in the July report will no doubt be increased to around a billion bushels. Soybean stocks were 29 million bushels higher, but within the range of guesses. Ending stocks reported in July could approach 209 million bushels. Wheat stocks ended their marketing year at 861 million bushels, 52 million bushels higher than reported in June’s USDA Supply & Demand report and 35 million bushels higher than the average trade guess.

The tables below summarize the Acreage report in the U.S. and Tennessee and the Quarterly Grain Stocks report.

Biotech varieties accounted for 88% of the corn planted compared to 86% last year. Tennessee corn acreage is expected to be 60,000 acres greater than in 2010, but 50,000 acre less than March intentions. I would have expected a greater reduction from the March intentions, but profitability did favor (or at least were pretty even) corn over soybeans even at a reduced yield due to late planting.

Tennessee cotton acreage was only down 10,000 acres from the March 31 report at 460,000 acres. This compares to 390,000 acres in 2010. As in corn this also was a little of a surprise as planting conditions were not the best in late April and May. Producers with cotton booked generally planted later this year in order to satisfy their contracts. Also like corn, profitability favored cotton over soybeans even with the possibility of a yield reduction from late planting. Cotton acreage in Tennessee might have even been higher if conditions in May had not been so wet. In Tennessee, 98% of the cotton planted is a biotech variety compared to 98% last year and 90% nationwide. Tennessee growers have planted 83% of the cotton crop in a stacked gene variety with both insect and herbicide resistant genes. Nationwide, the cotton story will be mainly in Texas as drought conditions continue. It is estimated that the dryland crop will be lost and the irrigated crop will be below average. Other areas to watch are Georgia where drought is intensifying as well as Louisiana and Mississippi. Arkansas has recently moved into an abnormally dry designation.

In Tennessee, soybean acreage is estimated at 1.38 million acres up 20,000 from the planting intentions and down 70,000 from last year. Tennessee planted wheat acreage was estimated at 390,000 acres a 30,000 increase from March. Harvested acreage is estimated at 310,000.

The next USDA Supply and Demand report will be released on Tuesday, July 12 and will update the fundamental numbers based on the Acreage Report and Quarterly Stocks Reports. It is anticipated that the Quarterly Stocks Report will result in increased carryovers for corn, soybeans and wheat. The supply and demand numbers below will not reflect the anticipated stocks change, but will look at the effects of yield on ending stocks with today’s acreage. I have added a line to show what the effects might be in the July 12 report.

If USDA adjusts upward by 370 million bushels the ending stocks for this current marketing year, we could see a carryover of 1.3 billion bushels for 2010/11. Using USDA’s yield of 158.7 bushel/acre from June in the expected column would result in a carryover of 1.3 billion bushels, again assuming USDA makes a 370 million bushel stock reduction. Yields similar to 2009 of 164 bushels/acre would bring stocks up to a slightly more than adequate carryover of 1.778 billion bushels. 2010 yields around 153 bushels/acre, would result in ending stocks of 845 million bushels (assuming stocks adjustment), historically tight stocks. Corn prices were down hard today and closed at $6.29 a bushel for July and $6.48 bushel for September. The market did most likely put in a top on June 9 and will trade lower on the bearish acreage and stocks reports. After today, the market will return to watching the weather and crop condition reports. Although there may be some question as to how many corn acres will get harvested, the market is going to trade today’s number until it is convinced otherwise. I am currently 50% forward priced on the crop.

Although cotton acreage is expected at 13.7 million acres, I would not be surprised to see harvested acres remain at the USDA June report level of 10.2 million acres. Abandonment will be high in Texas, reflecting drought and probably offset any acreage increases. Using expected yields from the June USDA report of 800 pounds per acre would result in ending stocks for 2011/12 of 2.46 or 2.5 million bales. With drought conditions in Texas, the South, and Southeast, yields could drop to 775 pounds resulting in ending stocks of 1.9 million bales. Today’s acreage report was somewhat bearish, but the market will have to consider what harvested acres will end up. Supplies most likely will be down, but has demand lessened more than projected from higher prices earlier in the year? There is still uncertainty in the production season, December 11 cotton closed at 118.59 cents/lb, down 2.81 cents. I would currently be 45% forward priced. If price weakness continues, producers may want to consider buying call option on cotton forward priced. This could give an upside to the forward priced crop.

Today’s acreage report for soybeans was considered bullish, but the stocks report was slightly bearish. The world market has an adequate supply of soybeans so it is possible that demand for U.S. soybeans could soften. However, if demand stays constant with what USDA projected in the June report, ending stocks for soybeans should drop from the adjusted ending stocks for 2010/11. Yields would have to be higher than 44 bushels/acre for stocks to build. This should be supportive for the soybean market, but it will trade somewhat with corn. The market closed today with November down 29 cents at $12.94. However, there a couple of unknowns that need to be watched related to soybeans. One is the weather as how it will affect a later planted crop. Acreage could still be up in the air as some acreage that was intended on June 1 may not have gotten planted or will have reduced yields or some acreage intended for corn may have switched to soybeans. I would currently be 50% forward priced. I would look at any rallies as an opportunity to implement an option strategy. Additional weakness may be an opportunity to buy call options on forwarded priced crop giving it an upside.

USDA will probably adjust the 2010/11 ending stocks to 861 million bushels based on today’s Grain Stocks Report. Harvested acreage for 2011/12 in the July report will be adjusted downward slightly from June. The end result is not that much different from the June report but the market today closed down strong, in sympathy with corn. Some spring wheat acreage could be questionable, but if there are adjustments to be made they will show up in the resurvey of Montana, Minnesota, North Dakota, and South Dakota. Just based on today’s report, this could be an overreaction. Regardless, ending stocks should be considered adequate to borderline more than adequate. The wheat market will continue to look at the global supply picture and foreign production. July wheat closed down 56 ½ cents at $5.84 ¾. September closed at $6.14 ¼ a bushel and July 2012 was at $7.27 bushel.