Are Report Expectations too Bullish for Corn?

(AgWeb) – The August World Agricultural Supply and Demand Estimates (WASDE) report is coming up fast and it has become one of the most important reports of the year. After a very slow planting season there were still a lot of questions about acreage even after the USDA’s Planted Acreage report on June 28^th.  This is also a report that the USDA has historically made changes on yield. Looking at the average trade guesses the expectations are for big reductions in corn production. Will this be the case or are expectations too bullish?

The planting season in 2019 was historically slow due to wet and cold weather. Large portions of the corn and soybean crops still needed to be planted when the USDA surveyed farmers on acreage in the first two weeks of June. At the time farmers were asked what they were still intending to plant, but no one really knows if the rest of the intended acres got planted or not, or what they were planted with. Shortly after the release of the Planted Acreage report the USDA announced that they would resurvey farmers for acreage in the first few weeks of July and then revise acreage on the August 12^th WASDE report if needed. Judging by the expectations the trade seems very sure it was needed.

To be blunt, the trade is looking for some very ambitious revisions in production from the USDA. Last month the USDA estimated a corn crop of 13.875 billion bushels on 91.7 million acres and a 166 national average yield. Using the Bloomberg trade survey analysts are looking for large reductions in acreage, yield and production. The average trade guess for acreage is down 4 million acres to 87.7. For yield the average trade guess is down 1.1 bushels an acre to 164.9. Overall the trade is looking for corn production to fall to 13.146 bullion bushels, this would be down a whopping 729 million bushels! For context, the USDA has only revised corn production lower in the month of August this much one other time in history, 2012. No other year comes even remotely close.

Production is not the only thing the trade is expecting big changes for. Somewhat as a reflection of lower production ending stocks are also expected to fall sharply. In fact, the average trade guess is for ending stocks of 1.570 billon bushels, down a massive 440 million bushels from the 2.010 billion bushels the USDA estimated in July. Once again, there is only one other year where the USDA has lowered ending stocks so dramatically on the August WASDE report. In 2012 the USDA cut ending stocks by 533 million bushels amid a massive US drought which ended up being one of the worst on record. And, once again no other year comes even remotely close.

Another issue I see is that in my opinion these are not the numbers the market currently has factored in. After a nearly 75 cent slide in corn since June 16^th is seems to me the market is pricing in a corn yield of around 167 with roughly 89 million acres and around a 13.500 billion bushel crop. If the August WASDE came out near the average trade guesses I would say that should be rather bullish for corn, however the speculative crown might not think so because we didn’t beat expectations.

I am worried that the very aggressive and bullish expectations the trade has for this report may be setting the corn market up for a near-term let down. While it is certainly possible that the USDA releases projections that are as (or more) bullish than expectations it seems more unlikely when we are looking for such massive cuts. However, the soybean expectations are much less bearish and could provide a surprise as well.

Producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!