While US wheat and soybean area were right on the money, it was the
fall in corn acres that caught the market off guard. Initial trade expectations
were for a 3% year-on-year decline in area. The final print indicated a 5% decline, or 4.5 million acres (1.82mHa)
reduction year on year.
As a side note, the reduction in wheat area is mostly found in the
largest HRW wheat-growing states of Kansas, Oklahoma and Texas. Are farmers there opting for a long fallow (utilising the CRP subsidy in marginal areas) or simply
hedging their bets that another higher-paying crop alternative will fill the gap?
In total, the principal crop area is down 6.3 million acres (2.55mHa)
from last year, a massive hole in production potential.
So the usual questions come to the fore after these reports. Had the
USDA overreported areas in previous releases? Are US farmers really going to plant more
alternative crops (cotton, sorghum, pasture)? Is there a glitch in the matrix? It will keep the market second-guessing until the USDA’s June acreage report which will reassess these figures against actual
planted area.
US wheat conditions are rated 57% good to excellent and around average
for this time of year. It is a significant improvement from last
year when drought through the HRW wheat areas saw the crop rated at only 28% good to excellent. It does correlate to at least average to above yields. Rain through
Kansas, Oklahoma and Texas over the next 10 days will help.
In Europe, they are thinking about having to build another Ark. Ongoing wet conditions, particularly in France, have reduced winter sown crop conditions (66% good to excellent) and are hampering sowing spring crops. Rapeseed area is expected to fall 9%
year on year and wheat and barley production is expected to be lower year on year. As the
saying goes, there is money in mud, but the European farmer will be praying for
some sunny days to get the crop back on track.
Russian production bears watching. On-going dry conditions at a time
when the crop is actively growing after dormancy are starting to ring alarm
bells. The next seven-day forecast is mixed, depending on which model you follow. Current estimates are for another
huge crop, ~94mmt, but a big crop will need a big finish. Flag to watch.
USDA uncovers a big hole
Next week
The weather market is starting its engines. Market participants will pour over production figures and crop condition reports looking for any sign of a problem. Those with perhaps most at risk are the spec crowd, holders of a record short (sold) contracts position. At this point in time they don’t appear to be too worried. However, if they get spooked, there could be a rush for the exit.
Have any questions or comments?
Click on graph to expand
Click on graph to expand
Data sources: USDA, Reuters, SovEcon, Refinitiv, Mecardo
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