Old crop corn is definitely a riddle right now, and could be extremely dangerous…unfortunately in both directions. Let me explain: there is doubt that the bushels exist, and also doubt the US farmer will sell what he has left on the recent break. However, we still need to consider a couple of important thoughts. Many of the guys who are still holding cash bushels have historically done well doing the same the past couple of years, and are now banking that the same thing will happen again this year. All I can say is be extremely careful driving the car at high speeds looking in the rear-view mirror.
Producers left with “old crop” supplies are now playing an extremely dangerous game of high stakes poker. Unlike last year (and I hate to say it), but YOU (the producer with old crop bushels) may end up being the ones ultimately holding the “bluff” hand. I realize the USDA has thrown out their bluff by reporting the 851 ending stocks number, while you are actually the ones that own the old crop corn bushels and feel as if you are in control.
Look back to last year, I would have to say the hedge funds ultimately held the “bluff” hand. Meaning they simply bid up the futures, the trade bought their bluff and they banked big profits as they blew out north of $7.50. From where I sit, the funds look as if they have tried the exact same strategy this time around, buying most every break and getting killed in the process. Simply stated, no one bought their “bluff,” production in South America never really fell apart, in fact the USDA is now estimating Brazil will have an extra 200 million bushels compared to their last estimate, and their prices are well below the US for July corn. We also have to realize the US has had next to ideal planting conditions and the thoughts of one billion bushels coming into the pipeline “early” are running rapidly through the trade.
All of a sudden the bet moves around the table to the “farmer” who is left with the actual corn, he “calls” the bet, and in some cases due to extreme stubbornness and anger over the USDA he actually raises (by re-owning more on the board). The problem I see for the “farmer” is who will now bid up the bushels he is left holding. Basically no one wants to be the guy without the “chair” when the music stops playing. Do you think producers who are looking at a basis of over $0.50 cents in the July contract will want to carry the corn forward and take the flat price hit and the massive basis hit as well? I doubt it, but if no one else “bluffs” or bids up the bushels then where do we end up? This is exactly why I didn’t want to hold “old crop” bushels this late into the game…
Today, the USDA released the May WASDE report and the May Crop Production report. The WASDE report, which included the first forecasts for the 2012-13 marketing year, contained some very bearish projections for corn, but the soybean and wheat forecasts have mixed implications. Following is a brief summary of the new forecasts.
Corn
For the current marketing year, the projection of U.S. feed and residual use of corn was reduced by 50 million bushels to a total of only 4.55 billion bushels. Analysts expect more wheat feeding this summer and an early harvest of the 2012 corn crop to reduce summer feed demand for corn. Year ending stocks are projected at 851 million bushels.
The projected size of the current Argentine corn harvest was unchanged from the forecast of last month, while the projected size of the Brazilian crop was increased by almost 200 million bushels (8%). The projection of world marketing year ending stocks was increased by 190 million bushels.
For the 2012-13 marketing year, the USDA forecast a record high U.S. average yield of 166 bushels. That forecast is based on the linear trend of yields from 1990 through 2010 adjusted up by 2 bushels due to the expected positive impact of early planting. Production is forecast at 14.79 billion bushels, 2.432 billion larger than the 2011 crop. Feed and residual use of corn is projected to increase by 900 million bushels during the year ahead due to lower prices and a jump in residual use due to the size of the crop.
Exports are expected to increase by 200 million bushels, to 1.9 billion, while ethanol use is expected to be unchanged at 5 billion bushels. Year-ending stocks are projected at 1.881 billion bushels and the 2012-13 marketing-year average price is expected to be in a range of $4.20 to $5.00, compared to $6.10 for the current year.
The USDA also sees an increase in corn production next year in Argentina, South Africa, Mexico, Canada, China, and the Ukraine. World stocks at the end of next year are expected to be 975 million bushels (19 percent) larger than stocks at the beginning of the year.
Soybeans
For the current marketing year, the projection of the domestic crush was increased by 15 million bushels and the projection of exports was increased by 25 million bushels, leaving the projection of ending stocks at 210 million bushels. The projected size of the current Argentine harvest was reduced by 92 million bushels and the Brazilian estimate dropped by 37 million bushels, further tightening the projection of year-ending world stocks.
For the 2012-13 marketing year, the U.S. crop is projected at 3.205 billion bushels, 149 million larger than the 2011 crop, reflecting a near record yield of 43.9 bushels. The domestic crush next year is expected to be 10 million bushels larger than that of the current year, while exports are expected to jump by 190 million bushels. Year–ending stocks are projected at 145 million bushels, reflecting a record low stocks-to-use ratio of 4.4 percent.
The 2012-13 marketing year average farm price is projected in a range of $12 to $14, compared to $12.35 for the current year. Under normal growing conditions, the USDA sees a sharp rebound in South American soybean production and world stocks in 2012-13.
Wheat
For the current marketing year that ends this month, the USDA raised the projection of U.S. exports by 25 million bushels and lowered the projection of ending stocks by the same amount. Very small adjustments were made in foreign wheat production estimates.
For the 2012-13 marketing year, the USDA projects the U.S. crop at 2.245 billion bushels, 246 million larger than the 2011 crop and the largest in 4 years. The projection reflects the NASS winter wheat production estimate of 1.694 billion bushels (up 200 million from the 2011 crop).
Spring wheat production forecasts are based on the March report of planting intentions, historic ratios of harvested-to-planted acreage, and trend yields. Consumption is expected to increase by 184 million bushels, mostly in feed and residual (50 million) and exports (125 million). Year ending stocks are projected at 735 million bushels, 33 million less than stocks at the beginning of the year. The marketing year average price is projected in a range of $5.50 to $6.70, compared to $7.25 for the current year.
Production of wheat in the rest of the world is expected to decline by 875 million bushels, 3.7 percent, from the large production of the past year. The bulk of the expected decline is in Kazakhstan and the Ukraine.
Marketing Implications
The projections for corn consumption during the current and upcoming marketing year continue to appear inconsistent. Feed and residual use appears under-stated for the current year and over-stated for next year. Prospective exports also appear under-stated for next year. On the production side, the USDA has started with very aggressive yield and production forecasts. It is not clear why 2011 was not included in the trend analysis of yields. Still a build-up in stocks appears likely next year and suggests prices will continue to moderate back to the levels of 2007-08 through 2009-10. Soybean forecasts are pretty much in line with expectations and support prospects for continued historic high prices. Wheat forecasts point to a return to a more normal balance of U.S. and foreign wheat production. Forecasts for the 2012-13 marketing year are subject to substantial change over time. The next check points for judging current forecasts will be the June 12 Crop Production and June 30 Acreage and Grain Stocks reports. Expect more surprises!
Commodities were range bound in April as the markets digested the implications of last month’s planting report. Soybeans have continued their rally and now stand at a three-year high after the USDA announced that U.S. farmers will plant the largest corn crop since World War II at the expense of soybean acreage. China shocked the market at the end of the month by buying 1.5 million tons of U.S. corn, the largest one-day sale since 1991. Optimal weather has farmers planting at a record pace across the Corn Belt as 53% of the entire corn crop has already been planted compared to the five-year historical average of only 27% by the end of April. So what does all this mean? Watch out for the markets wild cards!
Call them black swans, outliers or wild cards, they give the market fits. We may see a few this year, because farmers are at the center of some historical production swings. While grain trading is determined within a large supply-and-demand market, it’s the wild cards thrown into current tight supplies this year that will add volatility and possibly change on-farm production dynamics as we know them.
Thanks to a bullish environment and agree-able spring weather, USDA is expecting more corn acres. Overall supply is an important marketing factor, but demand from China and other overseas markets has an even greater impact, says Farm Journal economist Bob Utterback. “We are in a time period when the supply and fundamentals for corn and soybeans are still important but will indicate only about 40% of the price direction,” he says.
The Chinese wild card could be played. The U.S. Grains Council reports: “USDA has confirmed more than 3.9 million metric tons (MMT) of U.S. corn has been sold to China during the 2011/12 season. As I mentioned above just yesterday they bought their largest one day sale since 1991. With this sale it is possible that the current season could surpass the 1994/95 record of 4.287 MMT of U.S. corn sold to China.” That makes for a shaky corn market.
Another wild card is the Environmental Protection Agency’s recent approval of applications for registering ethanol in 15% gasoline blends. This is a significant step forward for E15 fuel—will more U.S. corn go to ethanol production this year? The record sale of U.S. corn at the end of April will set the bullish tone for grain prices throughout the summer and into the new crop marketing year. In addition there is no doubt that we will encounter many more bumps in road before fall harvest so keep your eyes and ears open.
Rumors circled the floor of the Chicago Board of Trade yesterday after members of the board of CME Group Inc. voted 9-1 to go to a 22-hour trading day, said Tom Grisafi of Indiana Grain Company.
While it is uncertain what the new hours will be, it is speculated that the CME Group seeks to go to a 6 a.m. to 4 a.m. trading day. Grisafi said this is in part to compete with the longer hours the InterContinental Exchange plans to implement May 14.
What would the proposed hours mean for farmers? The biggest concern Pro Farmer editor Chip Flory has about the change is an open market during USDA report days.
“If the market is open during report times, we will never see push or protection again,” he said. The changes will likely be of greatest concern for farmers who have exposed basis on a report day. “They are holding the most risk,” Flory said.
On Tuesday, rumors of Bovine Spongiform Encephalopathy (BSE) findings in a California dairy cow sent the cattle market into a tail spin. When the case was finally confirmed by USDA, the market had already closed. Today, cattle futures prices are beginning to recover as U.S. beef trading partners say the news will not impact trade. Although this morning two major South Korean retailers said they would not be selling U.S. beef. Even though this new case may not supposedly impact the market, it has given the already volatile dairy industry a black eye. In light of the BSE finding in California, there continues to be misinformation about this disease. Below is a blog post that sheds some more light onto the situation.
The fourth case of BSE (bovine spongiform encephalopathy), also known as mad cow disease, to ever be found in the U.S. was confirmed today on a dairy farm in California. The Centers for Disease Control says that BSE “is a progressive neurological disorder of cattle that results from infection by an unusual transmissible agent called a prion.” Because BSE is a neurological disorder, it cannot be transmitted to humans through milk or meat. The bovine version of the human disease Crutchfield-Jacobs disease, BSE can only be transferred through the ingestion of neurological tissues, whether in the brain or bone marrow. This is important to note because there is a misconception that BSE is contagious from one cow to the next, although it is not.
So is the cow really mad? The nickname “mad cow disease” is widely used and likely originated from the behavior of one of the first cows to be infected with BSE in the UK. Because it is a neurological disease, it often causes the animal to lose control of basic mobility functions. The cows appear to act drunk or crazy, i.e., “mad.”
The case discovered today is an atypical strain. This means it rose spontaneously and was not transmitted through something the cow ingested. The USDA has not confirmed how the disease was contracted in the animal but has confirmed that the milk, meat and food supply is safe. “It was never presented for slaughter for human consumption, so at no time presented a risk to the food supply or human health,” says USDA Chief Veterinarian John Clifford. “Additionally, milk does not transmit BSE.” The carcass of the dead animal is now in the hands of the state’s ag department.
While this means that the food safety system is working, today’s finding will undoubtedly cause fear in consumers. Similar to the first case of BSE in the U.S., which was found on Dec. 23, 2003, and was nicknamed the Christmas Cow, today’s events will likely lead to lower milk prices for dairy farmers. Since that time, only three others (including today’s) have been discovered in America. It is important to reassure your friends and neighbors that their milk is safe! “Milk isn’t Mad or Bad.“
Yesterday afternoon, the USDA released its weekly crop progress report. Soybeans joined the mix and are outpacing average historical planting percentages as well.
As of April 22, 2012, the 18 primary corn producing states have planted 28% of their corn, compared to 8% one year prior. 16 of the states have planted more than their 5-year historical average. Illinois has already planted 59% of its corn which outpaces its 5-year average of 17%. 9% of the U.S. corn crop has emerged compared to 2% from a year ago.
National progress is the third highest for this date at 28%. Kentucky and Tennessee are the furthest ahead of their respective state averages.
As of the third week of April, 6% of U.S. soybeans have been planted, a 4% increase from a year ago. 
As of April 22nd, 2012, the 6 primary spring wheat producing states have planted 57% of their crop, compared to the 5-year average of only 19%. South Dakota, which on average the past 5 years has 30% planted by this time, has almost planted their entire crop at 91%.
Winter wheat conditions have outperformed 2011′s conditions with 63% of the winter wheat crop in good or excellent condition, a 28% increase from last year. Winter wheat in very poor or poor condition is at 10%, a 30% decrease from one year prior.
Corn prices decreased by 0.2% over the past week ending at $6.22 per bushel, soybean prices increased by 1.2% over the past week ending at $14.37 per bushel, and wheat prices ended the week at $6.25 per bushel, a 1.5% increase from last week. Year-over-year corn prices are down 18.4%, soybeans are up 3.5%, and wheat is down 24.3%.
I have heard many mixed reports lately as to how planting progress is progressing but most have been local. The article below was posted on Ag Web today and talks a little more about the progress as a whole, not just locally.
Will the 2012 Corn Crop Be the Earliest Ever Planted?
April 20, 2012
Courtesy of the farm doc daily site.
Issued by Scott Irwin and Darrel Good
Unusually warm weather in March and early April provided the opportunity to start planting the 2012 corn crop earlier than normal. While there is little doubt that some corn has been planted much earlier than usual, determining whether the crop in total is being planted at a record pace is not as straightforward as it may seem at first glance.
The problems include:
Corn planting is generally spread over a relatively long time period.
The timing of planting differs substantially by region of the country.
There are several ways to characterize how early or late the crop is planted.
One consistent measure is the date at which planting in those states in the heart of the Corn Belt reaches 50% completed, as reported in the USDA’s weekly Crop Progress report. We previously examined this measure in the report found here. (View the latest planting progress reports with AgWeb’s interactive planting maps.)
Here we review the history of corn planting progress in the states of Illinois, Indiana, and Iowa for the period 1960 through 2011. We calculate the number of days before or after May 1st that planting reached 50% complete in each of the three states.
Since planting progress is reported on a weekly basis, the date of 50% completion is calculated assuming equal daily planting progress during the week that 50% was reached or exceeded. For example, if planting progress for a particular state was reported at 42% on May 1st and 63% on May 8th, we assume that 3% of the crop was planted each day during the week and that planting progress reached 50% on May 4th. For that year, planting progress reached 50% 3 days after May 1st.
The history of the number of days before and after May 1st that planting progress reached 50% in Illinois is shown in Figure 1. The first observation is that over time there has been a clear trend of reaching 50% completion earlier.
The overall tendency towards earlier planting over time means that a 50% date that is 15 days after May 1st in say, 1975, is comparable to a 50% date of May 1st in 2012. So, in order to make “apples-to-apples” comparisons of planting progress over time we de-trended the 50% planting date observations, much like yield observations over time are de-trended to reflect changing production technology and management practices. This is accomplished by subtracting the fitted trend line prediction each year from the actual 50% observation. The result is a “de-trended” series of 50% dates that are comparable over time. After looking at the trend-adjusted calculations of the number of days before or after May 1st that corn planting progress reached 50 percent in Illinois, Indiana, and Iowa, respectively. Several observations can be made.
First, the number of days before or after May 1st of 50% completion has been in a much narrower range for Iowa than for the other two states. Second, planting tends to reach 50% complete later in Indiana than in the other two states. Third, the range in the trend-adjusted date of reaching 50% completion has been larger in all three states over the past two decades than in the previous three decades, particularly in Illinois and Iowa.
What About 2012?
The USDA’s Crop Progress report released on April 17th (delayed one day due to technical difficulties) indicated that as of April 15th planting progress had reached 41% in Illinois, 24% in Indiana, and 5% in Iowa.
For planting to equal the previous record early date, an additional 9% of the crop needs to be planted by April 18th in Illinois (3% per day after April 15th), an additional 26% needs to be planted by April 25th in Indiana (2.6% per day after April 15th), and an additional 45% needs to be planted by April 22nd in Iowa (6.4% per day after April 15th).
It appears that a new record early date for reaching 50% planting completion could be reached in Illinois this year and perhaps in Indiana as well. It is less likely for record early planting to occur in Iowa. The April 23rd Crop Progress report will encompass the previous record early planting dates for Illinois and Indiana, with the report on April 30 to encompass the previous record early date for Indiana.
The trend calculations for 2012 are for planting to reach 50% complete on April 28th in Illinois, April 29th in Iowa, and May 8th in Indiana. For planting to reach 50% complete in Indiana by the trend date of May 8th, only 1.1% of the crop needs to be planted per day after April 15th. Similarly, to reach 50% complete by the trend date of April 29th in Iowa, only 3.2% of the crop needs to be planted per day after April 15th.
Market Implications of Early Planting
Corn planting in 2012 will reach the 50% completion date earlier than any other year since 1960 in Illinois and perhaps in Indiana as well. While Iowa is not likely to set a record early date, it is likely that Iowa will reach 50% complete well before its trend date.
While some records will be set in 2012 it is important to keep in mind that other years have seen corn planting almost as early. The main market implication is that a smaller than average percentage of the U.S. corn crop is likely to be planted late (after May 20) and incur the yield penalty associated with late planting. As indicated in our post of March 23 a smaller than average portion of the crop planted late supports the expectation for the 2012 corn yield to be about two bushels above trend, if there are no other offsetting factors later in the season.
After the USDA released its March 30th crop report the market opened limit up leaving many trader’s, including myself , scratching our heads as to why? A co-worker of mine phrased it best that day when he said “You can’t feed acres”. He meant that even though farmers intended to plant the most acres since pre world war two, it didn’t matter. What the market saw was that stocks were tight and demand was still going strong.
However, since then corn prices have traded both sides of unchanged still confusing farmers but over the past week corn prices have declined substantially. Does this mean that the 2011 crop has been rationed? It is probably since the release of the USDA’s WASDE report on April 10th, May and December futures have declined by $.26 and $.22 respectively. The recent weakness in old crop prices started with the USDA’s unchanged forecast of ending stocks of 801 million bushels. This was contrary to what many believed was going to happen. Following the smaller-than-expected estimate of March 1 stocks revealed on March 30, the market had anticipated that the April WASDE report would contain a larger forecast of feed and residual use and a smaller forecast of ending stocks.
New crop prices continue to reflect the larger-than-expected planting intentions revealed on March 30, an early start to the planting season, and the recent improvement in soil moisture conditions in a large part of the Corn Belt. While futures prices have declined over the past week, basis levels remain generally strong and the May/July futures inversion has increased. These relationships suggest on-going tightness in stocks and/or a slow rate of movement relative to the pace of consumption. While evidence about the pace of consumption is mixed, expect corn prices to remain under pressure until there is convincing evidence that the necessary rationing has not occurred or concerns about 2012 production develop.
With all the talk of farmers going to fields early this year, I found this article on Ag Web today that specifically references Ohio farmers and their crops. Now I am not agronomist, so I found it interesting. What stood out to me the most was the recommended time for planting corn in Ohio.
Corn growers wanting to ensure a healthy crop with strong yields need to plan ahead, including knowing when to plant, when and if to till, and how to make the right seed depth adjustments based on soil conditions, says an Ohio State University Extension expert.
“Mistakes made during crop establishment are usually irreversible, and can put a ‘ceiling’ on a crop’s yield potential before the plants have even emerged,” said agronomist Peter Thomison.
Following are some proven practices that will help get a corn crop off to a good start:
Till only when necessary and under proper soil conditions. Avoid working wet soil, and reduce secondary tillage passes. Perform secondary tillage operations only when necessary to prepare an adequate seedbed. Shallow compaction created by excessive secondary tillage can reduce crop yields. Deep tillage should be used only when a compacted zone has been identified and soil is relatively dry. Late summer and fall are the best times for deep tillage.
Complete planting by early May. The recommended time for planting corn in northern Ohio is April 15 to May 10, and in southern Ohio April 10 to May 10. But if soil conditions are dry and soil temperatures are rising quickly, and the 5-7-day forecast calls for favorable conditions, start planting before the optimal date. During the 2-3 weeks of optimal corn planting time, there is, on average, about one out of three days for field work. This narrow window of opportunity further emphasizes the need to begin planting as soon as field conditions allow, even though the calendar date might be before the optimal date.
Avoid early planting on poorly drained soils or those prone to ponding. Yield reductions resulting from ‘mudding the seed in’ may be much greater than those resulting from a slight planting delay. Also, if dry corn seed absorbs cold water as a result of a cold rain or melting snow, ‘imbibitional chilling injury’ may result. Cold water can cause similar injury to seedling structures as they emerge during germination. Such injury in corn seed ruptures cell membranes and results in aborted radicles, proliferation of seminal roots and delayed seedling growth.
Adjust seeding depth according to soil conditions. Plant between 1.5 to 2 inches deep to provide for frost protection and adequate root development. In early to mid-April, when the soil is usually moist and evaporation rate is low, seed should be planted no deeper than 1.5 inches. When soils are warming up and drying fast in late May or early June, corn may be seeded more deeply, up to 2 to 2.5 inches on noncrusting soils. Consider seed-press wheels or seed firmers to ensure good seed-soil contact.
Adjust seed planting rates on field-by-field basis. Adjust planting rates by using the yield potential of a site as a major criterion for determining the appropriate plant population. Higher seeding rates are recommended for sites with high yield potential, high soil-fertility levels and water-holding capacity. Follow seed company recommendations to adjust plant population for specific hybrids.