Corn: The USDA released the acreage report at 11:00 AM today. This report caught the market off guard with a much larger than anticipated corn crop for 2016. In fact, the average trade estimate for the 2016 corn crop was 89.97 million acres. This was based primarily on the USDA’s Outlook Forum projection of 90.00 million acres of corn that was released back in February. Today’s report estimated that 93.60 million acres of corn will be planted in 2016. That is a significant increase over 2015’s levels and will be detrimental to U.S. corn prices. The increase stands to reason what many producers have been stating that they plan to do in 2016. Prior to the report, corn was perceived to have a higher profit potential when compared to soybeans. Some suppliers have reported higher corn sales that validate this thought process. However, to say that many acres had already been designated to corn is still an unknown. With the increase in acres, supplies will be larger and the end result will be lower prices. Today, corn futures closed at their lowest point since mid-January. It is looking like it will take a large weather event such as a drought to substantially rally prices.
The report was not much of a surprise on ending grain stocks. The USDA’s figures were in line with trade estimates. As of March 1, corn stocks are estimated to have equaled 7.8 billion bushels. September corn futures have decreased by $0.18 since last Thursday while the average local harvest basis equaled -$0.19.
Unfortunately, today’s USDA report has placed a millstone around the neck of corn prices. This may force producers to reevaluate their crop mix and switch some corn acres into cotton or soybeans. Another bearish factor for the corn market is that China has decided to stop stockpiling corn and will begin supplying their demand for corn domestically, which will reduce their imports. The Chinese are to begin utilizing this policy in October.
Soybeans: The USDA anticipates that 82.24 million acres of soybeans will be planted in 2016. That was below the average trade estimate of 83.06 million acres. This was favorable for soybean prices and soybeans closed higher today as a result. Soybeans also benefited from a weaker U.S. dollar. The dollar has been trading weaker as the Federal Reserve has decided to slowly raise interest rates. The Fed is being hesitant to raise rates due to the sluggishness of the U.S. economy. The report also revealed that stocks of soybeans equaled 1.53 billion bushels as of March 1, 2016. That was in line with the average trade estimate of 1.57 billion bushels. Back in February, the USDA Outlook Forum had indicated that the 2016 soybean crop would be near 82.50 million acres. The report did not include as much of a surprise for the soybean market as it did for the corn market. It did open the opportunity for more acres to be planted in soybeans if producer’s decide to switch some of their intended corn acres back to beans. Since last Thursday, soybean futures have increased by $0.02 while the average local harvest basis equaled -$0.11.
Wheat: The USDA lowered total wheat acres down to 49.6 million acres. That is approximately a 9% decrease from 2015 levels. The expected reduction in wheat acres caused the market to close higher today. Although the report was bullish for wheat prices, the world continues to be full of wheat. That in of itself will place very strong headwinds on the wheat market and quill any attempt of a price rally. On the first trading day in 2016, July wheat futures opened at $4.86. Today, July wheat futures closed at $4.81. Over the past three months, wheat prices have been trading range bound due to the sheer amount of wheat in the world. Until those stocks are reduced, we may not see any major change in prices. As of March 1, 2016, the USDA estimated that there was 1.37 billion bushels of wheat in storage. Over the past seven days, July wheat futures have increased by $0.10 while the average local harvest basis equaled -$0.09.
Cotton: December cotton futures closed at $57.70. Cotton loan options (equities) continue to be around $0.10 to $0.13. The USDA report did indicate that U.S. would have a larger cotton crop in 2016. Today’s report projected that 9.56 million acres will be planted in 2016. That is a 11% increase over 2015 planted acres. The increase is in direct response to producer’s looking at their crop mix and deciding that cotton has more profit potential than some of the other crops. Of course, that all depends on your individual cost structure as to whether that can be realized with your operation. However, the decline in corn prices may cause a few West Tennessee producers to look at planting more cotton.
Take Home Message: The USDA report contained a few surprises that will provide price direction for the short term. Regardless of your opinion of the figures, it is the information that the market will trade until the 2016 crop is planted and we get a better idea of what will actually be planted. According to today’s report, the combined planted acres for soybeans and corn will equal 175.84 million acres for 2016. That is a 5.19 million increase over the combined planted acres of corn and soybeans that was planted in 2015. Granted, most of the increase in corn and soybeans is thought to have come from wheat acres. However, I want producers to realize that 175.84 million acres is a very large corn and soybean crop. The sheer size of the crop is going to create challenges for price increases in 2016. Farmers will be forced to reevaluate their cost structure to decide what is the best crop mix for 2016. After that has been decided, a marketing strategy must be developed so as to have a plan for getting through 2016. This year is indeed looking to be a very challenging crop year. If you need any assistance in trying to plan for 2016, the UT Extension Farm Manage program is designed to help you plan for times like these. Contact your local extension office for more details on the program or you can email me directly at danhmorr@utk.edu.
