grain harvester combine work in field_shutterstock_75432658

Last week, I finished off the weekly market comment by saying “ Unless the USDA surprises with a sharper-than-expected reduction in corn area, I suspect the trade are pretty well positioned.” Surprise, surprise, the USDA report released last Friday did end up a market mover.

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. 

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.

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Click on graph to expand

Click on graph to expand

Data sources: USDA, Reuters, SovEcon, Refinitiv, Mecardo

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