March 19, 2001
FOCUS ON USDA REPORTS
On March 30, the USDA will release
a trio of reports that may have important implications for the
crop markets. These include the Prospective Plantings, Grain Stocks,
and Hogs and Pigs reports. The report of farmers planting intentions
will likely draw the most attention. The market's expectation
of more soybean and sorghum acreage and less corn acreage has
been well advertised. This report, however, will provide that
important benchmark of how large a change has been planned. The
market will not likely accept the March acreage intentions at
face value, recognizing that final plantings may differ significantly
from intentions. Spring weather conditions, availability of nitrogen
fertilizer, and crop price changes may all have some impact on
planted acreage. Over the past ten years, actual soybean acreage
exceeded intentions nine times. The lone exception was last year,
when acreage was 375,000 acres below March intentions.
For corn, the pattern has been just
about opposite of that for soybeans. Planted acreage has been
below March intentions in seven of the past ten years. Years when
acreage exceeded intentions included: 1992, 1994, and 2000. The
largest increase was 1.664 million acres recorded last year.
The March 1 Grain Stocks report
is usually most important for corn as it provides a measure of
domestic feed and residual use of corn for the second quarter
(December through February) of the marketing year. During the
second quarter this year, corn exports were about 70 million bushels
less than during the same quarter last year. If domestic use is
on track to reach the larger USDA projections for the year, March
1 stocks of corn should have been near 6.07 billion bushels, about
470 million bushels above the inventory of a year ago.
For soybeans, use during the second
quarter is pretty well known. The USDA reports exports on a weekly
basis and the Census Bureau and the oilseed industry provide domestic
crush estimates on a monthly basis. The stocks report serves more
as a check on the accuracy of the production estimate. Assuming
the 2000 crop estimate of 2.77 billion bushels is accurate, March
1 stocks of soybeans should be near 1.43 billion bushels, about
35 million larger than stocks of a year ago.
The March Hogs and Pigs report will
provide an important indicator of prospective domestic feed demand.
The December 2000 report indicated that the industry was in a
modest expansion. The monthly reports in January and February
reported larger pig crops in December and January. The January
pig crop was reported to be 6 percent larger than that of January
2000. The monthly reports are new, so the market does not yet
have a feel for their accuracy. The hog market did not respond
to the larger than expected January pig crop estimate. In addition,
slaughter to date is reportedly running behind the pace suggested
by the December inventory report. The March report will provide
an important update on the current inventory of hogs as well as
the production plans of producers.
The month-end USDA reports should
be incorporated into the price structure very quickly. The market's
attention will then shift to spring planting conditions and summer
weather forecasts. Unlike last year, current expectations tend
to lean towards generally favorable weather and prospects for
large crops. Subsoil moisture levels in the midwest are generally
more favorable than a year ago. There is some concern about excessive
moisture and possible planting delays in the upper midwest. Both
the northwestern and southeastern areas of the country continue
to be dry and near term prospects suggest that pattern may continue.
The recent decline in corn prices
has not resulted in any decline in the carry in the price structure.
May 2002 futures are about $.42 higher than May 2001 futures.
If the growing season gets off to a good start, that 20 percent
carry may begin to erode, although prospects for large carryover
stocks will require some carry in the market. New crop prices
for fall delivery are still above the loan rate in most areas,
but not by a wide margin. The declining premium over the loan
rate makes new crop pricing less attractive. With the loan rate
as an effective price floor, producers can be a little patient
waiting on a spring weather rally. There is risk, however, associated
with old crop corn inventories for which the loan deficiency payment
has already been established. The same scenario is true for soybeans,
both old and new crop.
University of Illinois