Corn Futures Post Worst Rout Since 2013 on U.S. Acreage Surprise

August 13th, 2019


Category: Grains

(Bloomberg) – Corn plunged by the exchange limit after the U.S. Department of Agriculture said American farmers planted more than analysts estimate.

Futures capped their worst day in six years as the USDA pegged planted acres at 90 million, 2.6% higher than the average analyst estimate. The agency also said U.S. yields and production will be bigger than forecast.

The report was quick to be met with some skepticism from traders, who had expected the agency to better reflect in this report the impact of a deluge that hit the U.S. Midwest and delayed sowings by the most on record.

The USDA had already been criticized for its June planting estimates and, as a result, took the unusual step of re-surveying farmers to get a more accurate number. Back then, corn prices tumbled, costing farmers about $2.6 billion, according to estimates from the American Farm Bureau. It was another blow to the rural economy, which is already grappling with the U.S.-China trade war.

“Corn drops the limit with the USDA once again not cutting onto their estimates despite widespread expectations to do so,” futures and options brokerage INTL FCStone said in a note to clients. “Foul cries will continue.”

The U.S. faced one of the wettest planting seasons ever, delaying corn plantings and leaving normally uniform fields totally uneven, at least in the state of Illinois. Soybeans aren’t much better. Flowering is behind schedule and now that the weather has turned dry, plants are struggling to develop.

The USDA forecast corn yields at 169.5 bushels an acre, 2.8% higher than analysts expected.

“It is hard to understand the USDA yield estimates,” said Jack Scoville, a broker at Price Group in Chicago. “We were out in central Illinois over the weekend and the crop was silked and making ears, but only a couple of areas were far enough along to get a good count. The early area yields were good, the rest was blister or less and hard to count in any reliable way.”

Still, corn plants are proving to be resilient thanks to advances in seed technology and precision farming, a trait pointed out earlier this month by Ray Young, chief financial officer of Archer-Daniels-Midland Co., one of the world’s largest agricultural commodities traders.

“With the seed technologies of genetics, it’s amazing what yield can be,” Young said in an earnings call Aug. 1.

Corn futures for December delivery fell by the limit of 25 cents to $3.9275 a bushel Monday on the Chicago Board of Trade. That left the price down 6%, a record for the contract and the steepest decline for most-active futures since April 2013.

Rich Nelson, chief strategist at Allendale Inc., said he expects futures to drop to $3.30 by the time the December contract expires, based on current market conditions.

Doubts over the numbers linger, especially amid a separate report from the agency that detailed the number of fields that were left unsown. So-called prevent plant acres totaled a record 11.2 million acres for corn, while unplanted soy acres also reached an all-time high at 4.35 million.

On Twitter, Lance Honig, branch chief for crops at USDA’s National Agricultural Statistics Service, said the prevent plant numbers were “not directly factored in to our estimates” that were reflected in the WASDE report.

Soybean futures also fell, but held up better than corn after the soy acreage number came in lower than expected. The extremely bearish corn market pulled soy down with it, said Terry Reilly, senior commodity analyst at Futures International LLC.

“What I like out there is to see some soybean-corn spreading to kick in over the next day or two,” he said by phone. “We’ll continue to see weakness through the remainder of the balance of this week in the corn market.”

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