The key variable in North American grain markets over the course of the month of March each year is in fine tuning the estimates of planting intentions for the coming crop year. There are really just two factors which make up crop supply: the area of land planted to each crop and the harvested yield per acre.
Obviously, it is far too early to determine what sort of growing conditions we might experience in May, June, and July to start fine tuning yield projections. But March is the period when everyone is squarely focused on trying to accurately pin down exactly what producers intend to plant. It sets the stage for the potential grain supplies for the year ahead and in doing so establishes the price range for the upcoming marketing year.
Several commodity market analysis organizations including Informa (formerly known as Sparks) will release planting intention estimates over the month of March, culminating with the USDA’s Planting Intentions Report on March 31. Each of these estimates will have the capacity to influence grain future’s prices as we move through the reporting season.
The two numbers to keep in mind are the 2017 corn and 2017 soybean planting estimates from the USDA’s February Supply & Demand Report. In that report, analysts put 2017 corn planting in the United States at 90.489-million acres, (3.511-million acres less corn than in 2016), and 88.647-million acres of soybeans, (5.247 million more acres than the U.S. planted in 2016). Those estimates of 3.5-million acres less corn and 5-million acres more soybeans are already priced into the market. New crop futures prices at the Chicago Board of Trade have already taken into account these forecast changes in 2017 grain supply. So what we’re looking for as grain marketers in the coming weeks are deviations from the earlier crop size estimates.
The day-to-day moves in the futures markets are the result of the scrambling which occurs as funds and commercials have to adjust to fill the gaps between what they knew yesterday, and what they are finding out today. Any corn acreage number bigger than 90.489-million acres will be bad for corn prices. If we see planting-intention numbers for 2017 crop corn come in at 92-million acres, it will be devastating for price. Not because 92 million is still 2-million acres smaller than last year’s crop, but because it’s bigger than the 90.489 million that is “priced into” the $4/bu December corn futures which we traded when the February estimate was hot off the press.
Keep the 90.489-million acre in mind. It is the tipping point on the teeter-totter of price. A bigger acreage estimate will take prices lower; a smaller acreage will support prices moving higher.
The really fascinating thing about this current year’s planting intentions for North American soybeans is the incredible size of the number. In 2016, American farmers set a record by planting 83.4-million acres of soybeans. The current USDA indication of 2017 planting intentions at 88.64-million acres is a massive jump up from an already record-sized acreage. Without some sort of wide range production problem in the 2017 growing season, soybeans will certainly not become scarce in 2017–2018.
The market already knows that we’re looking at a 2017 soybean crop that is more than 5-million acres bigger than the previous record. What the market will react to throughout the process of the releases of various analysts’ 2017 planting intentions estimates is deviations from the 88.647-million acres. As astonishing as it may seem, we could see a record-sized soybean crop planted in 2017 of perhaps 86-million acres, and it will actually take prices higher because it’s lower than the 88.647-million acre February estimate.
Planted acreage is the first fundamental building block of grain supply for the year ahead. So these mid-to-late March planting intentions reports are critical in refining the anticipated markets for 2017–2018. Farmers need to be watching these report releases closely and also be prepared to make refinements to their marketing plans and target prices.
As you’re watching the markets unfold in the weeks ahead, remember that the difference between last year’s crop size and this year’s crop size doesn’t actually matter. We’re looking for deviations between the market’s expectation, and what the final releases actually reveal. Corn at 90.489 million and soybeans at 88.647 million. Anything other than those two numbers, and the price has to move in order to maintain its balance.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.
