As June winds down to a close, the United States Department of Agriculture (USDA) rolls out its revised acreage report.
The latest report brought some surprises, to say the least, as some numbers were a significant revision from March, 2020.
It is safe to say the market was a little shocked, as the USDA came through with lower than expected corn acres — at 92 million.
— Karen Braun (@kannbwx) June 30, 2020
Jon Driedger, of LeftField Commodity Research, based out of Winnipeg, Man., says the corn number was the lowest in the range of estimates, and it was definitely an aggressive drop.
“I think everyone is still trying to digest this. I think there are a couple of things to look at,” he explains. “The market was really expecting a drop in corn acres. So that in itself was no surprise, and I’ll be honest, it was a little smaller of a drop than some have been hoping for. Certainly, this one is almost jaw-dropping, to be honest.”
Driedger says the reason behind this is because the market is still sorting itself out. At this point, we didn’t see increases in acres in any other crops, which leads to many questions of whether this is a “real” number or not. Driedger thinks this will be a benchmark of sorts, where the market will trade-off from an acerage perspective going forward.
Forty-five minutes after the USDA report was released on Tuesday morning, December corn traded at $15.25, and November soybeans were trading at $22.50. Looking ahead, Tuesday’s market close will be very critical to the futures.
Corn estimates came in at 92 million acres, soybeans at 83.825 million acres, and wheat at 44.25 million acres. The extreme drop was corn, as noted, but it begs the question: where did these acres go?
“The headline number is one thing, but that really is a critical question. When you peel the onion layers back, you wonder how this is going to look, and what does that mean. And that’s a question that the market is really going to spend some time sorting through,” Driedger explains, adding that time will be the only answer to that question.
With everything going on in the world, whether it be a lack of driving due to COVID-19, or trade issues with China, it makes one hesitant to jump on the bullish camp for corn. Driedger says that as a marketer, he would maybe consider taking some risk off the table by selling into any rally this produces.
Check out the full conversation between Jon Driedger and RealAgriculture’s Shaun Haney, below:
“For corn, I’d still have a sell-to-rally mindset. That being said, there could still be a little short-term momentum. I say that because the funds are quite short coming in this report,” he notes. “You get an aggressive move, you run into some stop-loss orders, you maybe get some buying that can feed itself. So there’s the potential for momentum to carry us here. But from a broader perspective, it’s pretty hard to be bullish corn right now,” adding that even if this 92 million acres is a real number, he doesn’t think it’ll be hard to see us claw our way back to a carryout that’s all that different from what we were looking at prior to today’s report, based on old crop stocks being a little bigger.
The durum number is up to 1.5 million acres, which is a focus for Canadian growers especially. Demand is staying strong for durum right now, as we also saw in June’s StatsCan report, and as of now, we don’t necessarily have the supply to meet that demand. This means that prices still could stay in the higher zone futures wise.
“I think the old crop stocks is getting drawn down to really tight levels, and I think global demand is looking really good for this year. In North Africa, for example, those crops are lower, so the demand outlook is good in some of those regions. So I think the demand outlook, and the fact that some of those old crop stocks have gone down as much as they have going into this next harvest, the market can handle an increase in acres in Canada,” Driedger explains.