July 2020

Some positive news for a change

The June Acreage and Grain Stocks reports often create a lot of market buzz, usually in the downward direction. But this year’s reports provided a positive lift for a change. While corn disappearance did decline dramatically this spring, corn stocks on June 1 were roughly the same as they were in 2019. Soybean stocks were 22% lower this year. And while acreage was up for both corn and soybean this year, compared to last year, the increases were not big as the markets anticipated. So short-term supplies are at or below last year’s levels and long- term supply projections are now smaller than first feared. Combine that with some positive signs on the demand side with ethanol plants continuing to bring back production and some movement on soybean export sales, and both the corn and soybean markets gain 10 to 20 cents.

In looking at the reports, let’s start with what was the most bearish piece of news in the reports, the drop in corn disappearance. The markets already knew disappearance had fallen, the question was how much. The stocks report gave us the answer, at roughly 700 million bushels over the last three months. The closures within the ethanol industry explain the lion’s share of the reduction.

However, since the 2019 crop was smaller than the 2018 crop, overall national corn stocks on June 1 were able to hold at roughly the same level (5.2 billion bushels) across the years. So disappearance dropped, but stocks didn’t grow dramatically. And the rebound in ethanol production creates opportunities for corn disappearance to ratchet back up and corn ending stocks to finish close to the previous year’s level, around 2.22 billion bushels.

The state stocks data showed where the drop in ethanol production had the largest impacts. While the ethanol industry felt the squeeze all across the country, the larger pullbacks occurred in the western Corn Belt. Table 1 outlines the implied reductions in corn usage from the stocks data. To compute this, I compared the state corn stocks on March 1 and June 1 for 2019 and 2020 and calculated the relative bushel change in stocks over the two years. Minnesota experienced the largest reduction, with roughly 150 million more bushels staying in storage during the spring this year. Iowa producers are holding 140 million more bushels. Illinois and South Dakota have roughly 100 million bushels each.

table 1

Soybean stocks, on the other hand, were down significantly, 22% lower than this time last year. While soybean disappearance was also lower, the impact was smaller, only an 8% hit versus the 20% hit corn took. And given the smaller crop in 2019, soybean stocks continue to shrink in comparison to the last couple of years. The pace of soybean drawdown is strong enough to bring 2019/20 ending stocks well below the 2018/19 level.

The stocks report addressed some concerns about current supplies. The acreage report addressed some concerns about upcoming supplies.  And here, the crops switched positions, with the corn market dealing with the lower numbers and soybean essentially holding steady. Since the March Prospective Plantings report, the corn market had been weighed down by the prospect of 97 million acres being planted this spring. Well, the June Acreage report revealed that intentions are one thing and actions are another. While for the most part, weather conditions suited a rapid and robust planting window, farmers chose to pull back on corn planting this year. Table 2 shows the shifts in corn area from the March intentions to the June plantings. I list the top 10 states with declines from March intentions and all of the states that displayed increases. Nationwide, farmers indicate that 92 million acres of corn will be planted (with roughly   2 million acres still to be planted at the end of the survey period). That’s 5 million acres less than the March intentions. The largest reductions were in the Great Plains, with North Dakota, South Dakota, and Nebraska all cutting back by at least 600,000 acres. But they weren’t the only ones. Farmers in 32 states planted less corn than the March intentions outlined. Iowa producers pulled back by 100,000 acres. Now, corn area is still higher than it was in 2019, it’s just much lower than what the March survey said was coming. We did see some corn expansion, in 5 states, with Wisconsin being the largest gainer. The 5 million reduction in acreage translates to a 830 million bushel reduction in expected production, given trendline yields. So while the 2020 crop is still projected to be a record crop, the US is no longer flirting with a 16 billion bushel corn crop.

table 2

Normally, reductions in corn area also translate into increases in soybean area. However, that was not the case this year. Of the 5 million acres moving away from corn, only 315,000 acres found its way to soybeans. And again, the Dakotas play a pivotal role here. There was a general pullback across the Dakotas, with soybean plantings being 800,000 acres less than the March intentions. So the Dakotas planted much less corn and soybeans than the producers there hoped to do in March. Weather factors, both this year and last year, sculpted those decisions. Between the weather delays with last year’s crops (including some harvest of it this year) and the highly variable precipitation patterns this year (where you don’t have to travel too far to go from drought conditions to excess moisture), farmers in the Dakotas had a rougher spring than most. Meanwhile, we did see some of that normal shifting from corn to soybeans in areas further south and east. Kansas and Indiana were the two states with the largest gains in soybean area over their March intentions. And in Iowa, the 100,000 acres corn lost, soybeans gained. Overall, the additional soybean acres only add 16 million bushels to the projected supply.

Putting the reports together, the corn market now has a good picture of the extent of the damage  done to usage by COVID-19, but has also seen that farmers have potentially more than compensated  for that with lighted plantings. Meanwhile, soybean usage suffered less damage, and also didn’t absorb the acreage first intended for corn. All in all, traders finally got some bullish news, and thus far, they haven’t wasted it. We’ll get USDA’s new price outlook in a week and a half, but the futures markets are pushing for better season-average prices than USDA’s current projections. As we enter July, USDA stands at $3.20 per bushel for corn and $8.20 per bushel for soybeans on the 2020 crops. The futures markets point to season-average prices in the $3.40 per bushel range for corn and $8.60 per bushel range for soybeans.

Chad E. Hart, extension economist, 515-294-9911, chart@iastate.edu


Chad E. Hart

extension economist
Iowa State University
468E Heady Hall
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