With Surprise Acreage Drop, Pendulum for Corn Prices is Swinging
USDA unleashed a bullish acreage report on Tuesday. After surveying U.S. farmers about planting intentions in March, USDA printed 97 million corn acres for 2020. However, lower prices and weather seemed to prompt to producers to make a massive switch. USDA says its latest survey showed farmers planted 92 million acres of corn.
Brian Splitt of AgMarket.Net says that acreage number has room to drift lower, based on survey results released Tuesday.
“I think something worth noting is that the survey was done between basically the back end of May to June 16,” he says. “At that point, there was a little over 2 million acres of corn that had yet to be planted that were still intended on being planted. So, did those 2 million acres of corn actually get in the ground? We'll find out as we move forward.”
Splitt says the market was expecting a reduction in corn acres heading into the report, but not a 5 million acre cut. He says even with eroding ethanol demand, the acreage reduction changes the game for the corn market in the near-term.
“I think when you look at what was done to the overall production, we were projected to do 15.995 billion bushels of corn production, and that was reduced just by dropping acres by about 823 million bushels,” he says. “Quarterly stocks did come in a little higher than expected, but it was still a net decrease to the overall expect expectation to carry out.”
Now that the acreage piece of the puzzle is present, Splitt says the market is shifting its focus to weather. The most recent forecasts show the potential for hot and dry weather to work its way in, something portions of the Western Corn Belt is already experiencing this week.
“If we move that [hot and dry forecast] forward, and we now say, ‘hey, what if yield works itself to 170, without changing any of the demand in the balance sheet,’ you're closer to 2-billion-bushel carryout now,” he says.
Splitt says demand will shift if corn prices trend higher, but he says the corn balance sheet scenario is much friendlier than some projections just a month ago and set the foundation for better prices in corn for the short-term.
“I think especially if you look at where corn is right now we're making new highs for the month at the end of the quarter, the previous high early in the month was $3.48 for December corn, so a close above that looks very good technically,” he says. “The funds are still holding that very large short position. This is the move right now where producers need to be very focused and use this as their marketing opportunity. We cannot let this slide by because at the end of the day unless we have an absolute catastrophic loss to yield, we're going to be priced too high wherever this hi is in the next few weeks.”
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