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Those August Numbers

Tuesday, August 27, 2019
filed under: Marketing/Risk Management

       The markets started the early summer season with a lot of optimism about higher prices. That optimism was based on one of the wettest spring planting seasons on record, resulting in severe planting delays for corn and soybeans — and, in some areas, spring wheat, sunflower and other crops. More than 25 million acres of corn were still not planted as of the middle of June.  The unplanted acres of soybeans were even larger. The market’s focus was on two issues:
  • How many acres would not be planted to any crop and, instead, go to Prevent Plant (PP) for crop insurance?
  • How much below trend-line might be the corn and soybean yields because the crops were planted so late?
       On August 12 the USDA gave us their August crop production and supply and demand estimates. The results were decidedly bearish, especially for corn. They were slightly positive for soybeans.
       Another part of the USDA, the Farm Service Agency (FSA), also released their acreage estimates the same day. The corn acreage estimate from the FSA (based on farmer certification) was almost 10 million acres smaller than the number used to calculate corn production.  A 10-million-acre difference is enormous.  The FSA planted soybean estimate was within 300,000 acres of the number used to calculate soybean production. There will not be a sunflower production estimate until October.
       The August USDA corn and soybean numbers from the August 12 report are in the table below.

CORN July USDA Trade Est. Aug. USDA
Planted  91.7 88  90
Harvested  83.6 80 82
Yield 166 165 169.5
Production 13.875 13.193 13.900
Planted 80 81 76.7
Harvested 79.3 79.9 75.9
Yield 48.5 47.6 48.5
Production 3.845 3.900 3.680
       The corn production estimate was as much as one billion bushels higher than many analysts expected.  A much larger planted acreage number was a big part of the problem, but USDA also increased the national average corn yield to almost 170 bushels per acre. That’s just six bushels per acre below last year’s record yield. 
       So, what happened to the other eight million PP corn acres reported by the USDA/FSA? And, is it possible to have almost a record corn yield with planting so late?  The USDA will answer those questions in future reports.  Corn was down the 25-cent trading limit on August 12th.
       The oilseed situation has taken an interesting and much more positive turn. The four million acre drop in soybean harvested acres from the July estimate obviously resulted in a much smaller crop production estimate.  The USDA did not change the soybean yield forecast (48.5 bushels per acre). They did, however, reduce the U.S. soybean export forecast. The result was a soybean ending stocks estimate that was 40 million bushels lower than the July estimate.
       U.S. soybean ending supplies are now projected to be 755 million bushels in August 2020. That compares to 1.070 billion bushels at the end of August 2019. The smaller-than-expected planted acres now means final soybean yield will be very important.  If that yield slips, so will the soybean ending supply estimate. The soybean crop is also developing later than normal. 
       Late-season weather, especially any normal or early frost/freezes, could have a significant impact on corn and soybean yields. There’s no way to predict weather that far out today. 
       The sunflower situation is similar: 76% of the crop was rated good to excellent as of August 11, but just 63% was blooming, compared to the five-year average of 79%.
       The USDA also forecast lower world production for soybean, rapeseed (canola) and peanuts.  Palm oil production is also expected to start a steep decline over the next two to three years because of aging palm plantations in Malaysia. 
       World sunflower production is now expected to be quite good and above last year’s level. 
       The last bearish market factor is the lack of any progress in the trade negotiations with China.  This situation has deteriorated throughout the summer following promising comments and meetings late last spring.  President Trump did delay the implementation of the next round of tariffs on imports from China until December.  No one is sure if that is based on a change in the direction of the talks or not.     
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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