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Will the trade’s bet on a historic drop in U.S. corn acres pay off?

Industry analysts are expecting an unusually large decline in U.S. corn plantings on Tuesday when the U.S. government issues the results of its second acreage survey of the season. Betting on the extremes does not generally bode well, but there is a decent chance for success this time based on 2020’s exceptionally low prices.

The market was caught off guard earlier this year when the U.S. Department of Agriculture’s early March survey suggested farmers would plant 97 million acres of corn, an eight-year high. That was some 2.7% above the pre-report trade guess, among the biggest misses on record.

USDA’s statistics service surveyed U.S. farmers for planted acreage in early June and those figures will be available Tuesday at noon EDT (1600 GMT). Analysts see corn plantings at 95.2 million acres, down 1.8% from March intentions.

That would be the largest percentage fall between the March and June surveys since 1995. There are a couple of reasons for that prediction, but the predominant ones are the many unplanted acres in North Dakota and the potential switching to other crops such as soy.

June corn plantings often come in higher than in March, and then acres typically drop a bit into the final number. In the last 20 years, June acres were lower than in March only six times with an average decline of 0.6%.

However, U.S. farmers planted their 2020 corn crop with new-crop December futures at their lowest levels for the time of year since 2006, so this year’s June acreage might reflect the final decisions a bit more than in the past.
2020 IS NOT 2019

June corn plantings came in 1.2% lower than in March during 2019’s controversial planting season that was delayed by excessive spring rains. Analysts bombed last year’s June report having expected a 6.6% decline.

The market was not counting on farmers pushing so hard on corn acres well into June last year, but new-crop corn futures hitting six-year highs for mid-June should have been a sign. Soybean prices remained comparatively low, so late-season switching, which is common when corn planting is delayed, did not happen.

Spring weather was relatively good this year, and corn planting reached 76% by May 15. Based on the last 20 years, corn acres had a 70% chance of increasing from March to June, but those chances rose to 75% when mid-May planting progress exceeded 70%.

Not everyone had a smooth planting effort in 2020, though. North Dakota had the most prominent struggles, as excessive moisture issues that began last fall carried through to the spring. By May 17, North Dakota farmers had planted only 20% of their corn, when around 60% is typical.

May 25 is the latest date to plant corn in most of North Dakota by crop insurance rules, so farmers’ decisions on corn were likely final by the time USDA’s acreage survey arrived. The difficult 2019 harvest along with low profitability prospects for 2020 would not have encouraged North Dakota farmers to press on past May.

That logic can be applied to the whole country as the final corn planting date for the Corn Belt is June 5, early on in USDA’s survey period. Producers were probably mostly done planting corn by then, a stark contrast with last year when one-third of U.S. corn acres was still unplanted by June 1 and prices were on the rise.

Back to North Dakota, USDA’s March survey showed the state’s farmers planting 3.2 million acres of corn this year, some 3.3% of national area. Since 2007, the state’s highest number of corn acres prevented from planting was 812,600 in 2011. That was about one-third of March intentions that year.

Corn planting was slow in some of the Delta states this year, accounting for about 7% of total intentions. Delays in southern states often lead to acreage reductions because the warm climate is prohibitive for late planting, regardless of the prices.

Most farmers in the primary Corn Belt states are rotational, meaning that futures prices are less influential on planting decisions than in other states. That does not support a huge exodus to soybean acres from corn, but soy plantings tend to rise from March to the June report.

Soybean plantings plunged 5.5% from March to June last year, but June soy acres were higher than in March in each of the seven prior years by an average of 1.6%.

However, soybean prices were unattractive for U.S. farmers during 2020 planting. The average price for new-crop November futures between March and May was $8.62 per bushel, a 13-year low for the period. The contract traded around that same area on Monday.

The trade sees soybean plantings 1.4% higher than in March in Tuesday’s report. The expected acreage of 84.7 million would be the third-largest soybean area on record but well below the top years, which were 2017 and 2018.

June soybean plantings have not been larger than the pre-report trade guess since 2014.

USDA’s National Agricultural Statistics Service (NASS) will also publish June 1 grain stocks on Tuesday, with corn, soybean and wheat inventories all seen lower than in the previous year.

Analysts peg June 1 corn stocks at 4.951 billion bushels, a four-year low for the date and down 5% on the year. That would suggest March-through-May use at 3.17 billion bushels, down 7% from a year ago and also a four-year low.

In recent years, corn prices have moved an average of 4% on report day, but the direction is mixed. Last year’s 4% drop in futures was the most bearish price response to the June reports since 2014.

Soybean stocks are seen at 1.392 billion bushels, down 22% from last year’s June 1 record but the second-highest ever. That would place quarterly use at 849 million bushels, a three-year low and down 10% from last year’s high. Soybean futures had a bullish response on report day in all but one of the past five years (2018).

June 1 wheat stocks are effectively 2019-20 ending stocks, and those are seen at a four-year low of 980 million bushels, down 9% on the year. Fourth-quarter use would be down 12% on the year to 452 million bushels.

Wheat futures were pulled down by corn on report day a year ago, but the price response was relatively bullish in the previous four years.
Source: Reuters (Editing by Matthew Lewis)

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