In The Cattle Markets: June Acreage Report
US - This morning, USDA released the results of their annual planted acreage survey, and the results took the market by surprise.
4 July 2011
4 minute read
Corn planted area was estimated at 92.3 million acres. Pre-report estimates averaged around 90.7 million acres, with the highest pre-report figures at about 91.5 million acres. Despite all the talk of delayed and even prevented planting, corn acreage is currently estimated to be about 100 thousand acres higher than planting intentions in March. What’s more notable is the fact that acreage expectations are now about 1.6 million acres higher than in the June World Agricultural Supply and Demand Estimates (WASDE) report. USDA’s World Agricultural Outlook Board (the group responsible for producing the WASDE report each month) had adjusted the June corn acreage estimate down in response to widespread planting problems.
One of the major points of debate among market analysts this year was just how long farmers would stick with planting corn. High expected returns coupled with sunk cost regarding fertiliser provided an incentive to continue with corn planting well beyond what would typically be considered the normal planting window. USDA’s acreage estimate clearly implies that this is exactly what farmers have done – to an even greater extent than most analysts expected. Eastern Corn Belt states that faced tremendous planting challenges generally saw relatively small drops in acreage from March intentions. Reported corn plantings in Ohio were down by just 200 thousand acres (about five per cent below intentions). Plantings in Indiana were even with intentions. Plantings in Michigan and Kentucky were actually higher than intentions. Western Corn Belt states that did not face the same planting delays as eastern states also tended to increase plantings. Plantings exceeded intentions in Iowa, Nebraska, and Minnesota by 300, 500, and 200 thousand acres, respectively.
The report comes on the heels of an already down corn market. Crop progress and ratings over the past few weeks have detailed an improving corn crop compared to earlier in the planting season. More recently, the International Energy Agency announced it would release 60 million barrels of oil, which pushed oil markets lower with corn in tow. Since it’s contract high, the December corn contract was down about 87 cents/bushel prior to today’s report.
The market will quickly shift its focus to two questions: how many of these planted acres will actually be harvested, and what will final yields look like? On the first point, the Acreage report includes a harvested acreage estimate of just under 84.9 million acres resulting in an 8% abandonment rate. This level of unharvested acres would be slightly below average. Given the number of acres that were planted late this year – in some cases extremely late – at first glance this seems a bit optimistic.
Today’s plantings estimate will serve to introduce some slack into what has been a very tight corn balance sheet. Using last month’s WASDE yield estimate of 158.7 bushels per acre, expected production now works out to just under 13.5 billion bushels – a new record by almost 400 thousand bushels. With June’s projected use of around 13.3 billion bushels, 2010/11 carryover would be about 950 million bushels. While this is a little more than 250 million bushels higher than last month’s WASDE estimate it still represents a stocks-to-use ratio of seven per cent. The bottom line is that today’s numbers suggest that corn supplies may be a bit more ample than it appeared they would just a few weeks ago, but the fundamentally tight supply scenario the market has been operating in has not been drastically altered. From that longer-run perspective, the break in the market that today’s report will no doubt produce may represent a pretty good buying opportunity for corn users.
In fed cattle markets, the strength from the previous week continued as cash cattle were $3-$8/cwt higher. Live cattle in Texas and Kansas brought $112/cwt while dressed cattle in Kansas and Nebraska were at $178-$180/cwt. In OKC markets last week, feeder cattle were $6-$10/cwt higher and calves were steady. Live cattle futures continued on the bullish path brought forth by the previous week’s on feed report and feeders basked in the higher live cattle prices and lower corn. Wholesale beef prices were higher with Choice and Select up $4.59 and $5.65/cwt, respectively.
