Most years the biggest question headed into USDA’s August crop reports is what the corn yield is. That estimate will be watched on Monday for sure, but it’s not the big data point the market needs to know right now.
Acreage is the number of the moment for 2019 corn due to the unusual growing season. Our Farm Futures survey found growers planted 83.5 million acres, compared to 89.1 million in 2018 and the 91.7 million plugged into USDA’s July WASDE report.
With a resurvey of growers still planting in June, along with acreage certified to the Farm Service Agency, most of the planting’s questions will be resolved. Harvested acreage will be the next topic, because late planting may mean more than usual is cut for sileage than harvested for grain. Frost, early or not could affect that choice for growers, and yields will also fluctuate. Our estimate of 167.2 bpa is in line with the trade, though the average guess is a few bushels lower.
If fields rated lower today are cut and baled instead of shelled, yields will vary too. And there’s evidence at the moment for either higher or lower yields. This week’s Vegetation Health Index showed some improvement for corn, with the average at 168 bpa but ranging from 160 to 175 bpa. Estimates based on crop progress ratings also added around a bushel per acre, averaging around 170.5 bpa. And July weather, late planting and June stress in some states is around 171 bpa.
If our survey is on target – and its average variance is 2% to 3% -- a 12.7-billion-bushel crop would shift the discussion to demand. Slowing usage this summer for ethanol and lagging exports make it likely USDA will boost its forecast for supplies of 2018 corn left over at the end of the marketing year Aug. 31. Those extra bushels will help meet the needs of end users until the late harvest comes in.
But a 12.7-billion-bushel crop would result in demand rationing – lower exports and feed usage, because bushels needed for ethanol are pretty well baked in by the blend wall. If, as I project, carryout drops to 1.3 billion bushels, rallies would be needed to turn livestock producers to alternative feeds and shift foreign customers to other countries.
All of these numbers will fluctuate until results off the combine provide some solid evidence. That may keep the market fairly cautious even if the Aug. 12 numbers are as bullish as I expect. The same could hold true for a bearish number, at least after initial selling subsides. But a rally back to June highs would provide most growers with opportunities to lock in some protection, once MFP payments, crop insurance and perhaps an ARC check is figured in, depending on how badly yields are affected. Crunch the numbers now, because a spike higher after the Aug. 12 report, if it comes, may not last long.
Corn prices have room to rally if the crop is as small as our survey found and carryout tightens in the year ahead. But a quick post-report surge may burn out quick as traders step back to wait for results off the combine.
The Vegetation Health Index for corn this week matched changes noted in USDA’s latest crop progress ratings. The eastern Corn Belt lagged while gains occurred in the west.
Use June and July highs from $4.64 to $4.73 as targets if USDA releases bullish estimates Aug. 12.
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