The USDA Prospective Plantings and Quarterly Grain Stocks Report were released today, March 30 and are based on information as of March 1, 2012. The prospective plantings report fell within pre-report ranges for cotton and wheat and above the high end of expectations for corn and below the low end of expectations for soybeans. On the average, corn acres were 1.16 million acres higher than the average pre report guess; cotton 410,000 acres more than the average guess; soybeans 1.6 million acres less than the average pre report guess; and wheat 1.69 million acres less than the average pre report guess. The quarterly grain stocks were reported to be 141.7 million bushels smaller than expected for corn, 8.7 million bushels smaller than expected for soybeans and 34.3 million bushels less for wheat. Together, these reports are considered bullish for corn, soybeans and wheat and neutral to bearish for cotton. As we go further into the planting season, we will see whether increases in soybean prices will be able to pull any additional acres. Market attention will focus on the weather, first planting and then growing and balance it against demand. The tables below summarize the Prospective Plantings report in the U.S. and Tennessee and the Quarterly Grain Stocks report.

Planting intentions did contain some surprises, but keep in mind these are intentions as of March 1 and can and will change as the market and weather changes. Corn planting intentions were 95.864 million acres, up 3.96 million acres from 2011, and 1.16 million acres greater than the average trade guess. Cotton intentions were 13.155 million acres, 1.58 million acres less than 2011 and 410,000 acres more than the average trade guess. Soybean planting intentions were 73.902 million acres, down 1.10 million acres from 2011 and 1.60 million acres less than the average trade guess. All wheat acres were estimated at 55.908 million acres, 1.51 million acres more than 2011 and 1.69 million acres lower than expected. In Tennessee, acreage intentions followed the direction of the trend but are more exaggerated than nationwide. In Tennessee, corn acreage is up 20% compared to 4.3% increase nationwide; cotton down 15.2% compared to 10.7% decrease nationwide; soybeans down 3.9% compared to a 1.5% decline nationwide and wheat up 4.8% compared to a nationwide increase of 2.8%. 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, soybeans, and wheat stocks were reported than the trade had estimated, resulting in a bullish report. Corn stocks were 141.7 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. USDA may lower the ending stock projection for this marketing year due to this lower than expected stocks. Soybeans stocks were only 8.7 million bushels less than expected which may not warrant a change in the April 9 USDA report. However, reports from China indicate that they will need to import more soybeans than earlier thought which with South America production down could steer additional business to the U.S. Wheat stocks were 35 million bushels less 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 2012 USDA Outlook Forum. The 2011/12 column is from the March 9, 2012 USDA Supply & Demand report. The next report will be released on April 10, so I would expect those numbers to be changed.

Trend-line yields or slightly above at 164 bushels per acre will more than double ending corn stocks with the demand projected at USDA’s Outlook Forum for 2012/13 and the prospective planting acres. However, the five year nationwide average yield of 153.9 bushels per acre would project stocks around one billion bushels. This early in the planting season, optimism abounds that we will have a good planting and growing year which would put yields at above average. The bearish planting intentions have been buffered somewhat by a bullish stocks report with May corn up 39 ¼ cents at mid-day at $6.43 ¼ bushel and September up 14 ¼ cents mid-day at $5.60 bushel. The soybean to corn ration today is at 2.53 to 1 which is moving more favorably to soybean prices over corn. Will this take away some of the intended corn acres or will favorable corn planting conditions win out over price. That is what we are currently facing in today’s market and which even with a large corn crop could still see good pricing opportunities. I don’t however see a return to last year’s $7.00 corn prices without a dramatic change in acreage or weather. I would look to increase pricing as we go through the spring. Over the last 20 years the average difference between corn acreage in this report and the final estimate is 1.145 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.

Planting intentions for cotton acreage came in 410,000 acres more than expected, but less than the National Cotton Council January survey estimate of 13.6 million acres. With cotton prices relatively flat and soybean prices moving up over the last month, we could see some additional cotton acres shift to soybeans. Some analysts look for old crop usage to increase, tightening stocks in future USDA reports to below 3 million bales for 2011/12. If so, we could see a price squeeze in old crop prices which could help pull up new crop prices and make for a new crop pricing opportunity. Using the USDA Outlook Forum usage numbers, the intended acres, expected abandonment and a yield of 777 pounds nationwide, stocks will build. The five year average nationwide cotton yield is 810.6 pounds/acre with a high yield of 879 pounds and a low yield of 772 pounds. It is expected that USDA will increase old crop exports in future reports that will lower old crop stocks and possibly keep new crop stocks in a reasonable range. If the drought fully breaks in Texas, we could see an increase in harvested acres and a higher Beltwide yield which would put pressure on prices. May cotton traded mid-day at 93.50 cents per pound. I am currently at 80% priced for 2011 production and would be willing to hold with a target of the $1 to $1.05 range as a pricing point. December cotton traded mid-day at 90.51 cents per pound. I would target the mid 90s as a pricing point for new crop cotton. I would not look for a return to the 2011 lofty levels. Over the last 20 years the average difference between cotton acreage in this report and the final estimate is 559,000 acres with the smallest difference being 6,000 acres and the largest difference of 2.113 million acres. The prospective plantings estimate has been below the final estimate 12 years and above the final estimate 8 years.

Planting intentions for soybeans are bullish. Grain stocks are just slightly lower than expected and are more neutral to bullish. With current intended acreage and estimated usage, a trend-line yield of 43.9 bushels per acre would tighten stocks to a 4.8% stocks to use ratio. The five year average yield is 42.1 bushels with a high of 44 bushels and a low of 39.7 bushels so at those numbers there is not much room for production problems. USDA at its Outlook Forum build in some pretty good demand increases which with a drop in South American production could be realized. However, I would guess that with strong soybean prices, additional soybean acres will be pulled in. The nearby May Soybean Futures at mid-day is up 55 ½ cents at $14.11 bushel. November soybeans are trading at $13.61 ¼ bushel, up 57 ½ cents. I am currently at 30% forward priced and would add 10% today to 40% overall. 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. A lot of ifs and unknowns, but that is why we look at options as a price risk management tool and one that could give us a decent price floor at even expensive premiums. Over the last 20 years the average difference between soybean acreage in this report and the final estimate is a 1 .131 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 12 years and above the final estimate 8 years.

Both intended wheat acres and grain stocks were somewhat bullish in today’s report. However, wheat at times has a tendency to trade with corn and soybeans and that seems to be happening. Under expected assumptions with intended acres and demand, ending stocks in the 2012/13 marketing year would stay flat to increase slightly from 2011/12. However, stocks to use would still be at a more than adequate level of 39.5%. Wheat is a food commodity so foreign production will have a strong influence on prices. July wheat futures traded mid-day at $6.71 ½ bushel, up 44 ½ cents per bushel. I am currently 20% forward priced and would wait until further in the spring before considering pricing more.