USDA/NASS’s March 29 Prospective Planting Report is generated from a large farmer survey done in early March asking crop producers what they intend to plant this spring, and re-ask how much winter wheat they planted last fall.
The purpose of the report is to allow the market and producers some time to marginally adjust planted acres if called for. And then as we all know, and we are seeing it this spring, weather can have a significant role in the final plantings.
But it gives the market, and therefore producers, a starting point from which to adjust. And there were some surprises — in corn, wheat, and soybean planting intentions.
Producers intend to plant 315.4 million acres of 22 Principle Crops, down 4.2 million acres from last year, and about 4 million acres less than the fairly constant number of acres planted from 2015-18. There was almost a 3 million acre decrease in corn, all wheats, and soybean acres, even with a 3.7 million acre increase in prospective corn acres.
USDA/NASS’s Quarterly Stocks Reports, released at the same time, had some surprises as well. Basically it appears less corn and wheat were used in the Dec-Feb period than expected, increasing expected ending stocks.
The March 1 quarterly stocks report shows we have 8.6 billion bushels of corn remaining in storage half way through the September–August crop marketing year. While this is below 2017-18, when we started with more, it was 270 bushels more than the average of trade expectations.
This could be due to several factors, including better feed efficiency given we have more livestock to feed, less waste, and or the 2018 corn crop was bigger than we now account for. At this point, it will be taken as lower feed and residual use than previously expected.
In the corn balance sheet, I have lowered feed and residual by 150 million bushels for 2018-19. This in turn increased expected ending stocks for 2018-19 by a like amount, which means we are likely to increase the 2019-20 total supply through larger beginning stocks by the same 150 million bushels.
The second shock for the corn market was the prospect of 92.8 million acres of corn to be planted this spring. This was 1.6 million acres more than average trade expectations and 600,000 acres above the highest estimate. When you multiply either the extra 1.6 million or 600,000 acres by an expected 174 plus bu/ac, it is a lot more corn than expected coming to the market.
Can the planted acres change? Of course it can. If the corn belt doesn’t dry out soon, we may have no choice but to switch some acres to soybeans, and there may be more prevented planting. But it is not like we need any more soybeans either.
In my previous 2019-20 projections, I expected for the 2019-20 ending stocks for corn to be lower than they will be for 2018-19. This is no longer the case. With more corn being brought into 2019-20, and more corn potentially being produced than previously expected in 2019-20, my numbers show an increase in expected ending stocks, and therefore a lower price projection.
Michigan is expected to plant 2.35 million acres of corn — 50,000 more acres than in 2018. However, 2017 and 2018 are the only years that we planted less than 2.35 million acres since 2006.
Until recently, the corn market has been paying producers to store corn on farm, in the sense the basis is expected strengthen more than storage costs.
However, and this is Michigan specific, while the future market spreads are calling for 4 cent a month storage returns, local basis being offered are weaker for July cash bids than May cash bids. Check out your local situation. If this is so, you may be better off with a basis contract and delivering corn sooner than later if you want to stay in the market for higher prices if they come.
The quarterly stocks report for wheat three fourths of the way through the June-May wheat marketing-year was a little higher than expected, but well within the range of expectations, so I did not change the 2018-19 projections.
Even so, it was not good news for the struggling wheat market. On a more positive price point of view, although the market is struggling to see it, 1.1 million less wheat are expected to be planted according to the intentions report than the trade expected, and 2 million less than last year. The 45.8 million acres of all wheat expected to be planted for 2019 will be the lowest number of wheat acres planted in the U.S. since records began in 1919.
This should lead to marginally lower projected 2019-20 ending stocks for wheat for the third year in a row. However, with ending stocks to use still projected at 47 percent, we have too much wheat for price to meet most producer’s costs.
Michigan planted 590,000 acres of wheat last fall for 2019 production. This is 80,000 more acres than last year and 110,000 acres more than for 2017.
The quarterly stock report for soybean was very close to expectations. On the use side, this is expected, because it is a lot easier to keep track of soybean-use than corn, where feed-use is the residual.
The prospective planting report was the surprise for soybeans. While we expected a lot less soybeans to be planted due to lower expected returns per acre for soybeans than corn (not that corn returns are good), we didn’t expect 4.6 million less acres to be planted this spring than last year.
U.S. producers suggested they will plant 84.6 million acres of soybeans this spring versus 89.2 million last spring. This was 1.6 million less acres than the average trade expectation, and near the low-end of the estimates. Michigan producers suggested they would plant 2.2 million acres of soybeans, 100,000 less than last year. However, when you add corn, wheat, and soybean planted acres for Michigan, we will plant 30,000 acres more of these three crops combined, unlike the U.S. as a whole.
This huge cut in acres will likely lead to lower ending stocks for 2019-20 than this marketing year. Projected ending stocks to use for 2019-20 will remain prohibitive unless we see a massive increase in exports, and/or poor soybean yields.
The spread for May/July soybean futures is 14 cents, suggesting a 7 cents return per bushel return for storing old crop soybeans. Unlike corn, however, cash bids show as much as an additional 5 cents per month return for many areas of Michigan. The July basis being offered is as much as 10 cents better for July cash bids than May cash bids.
Hilker is professor and Extension economist at MSU’s Department of Agricultural, Food, and Resource Economics.