Let March madness begin
It's game time Friday morning at 7:30 am CST, with the yearly Prospective Planting Intentions report by USDA. It may be the most anticipated government report in the past few decades!
For this report will tell us how responsive grain producers are to the strong incentive to increase corn acreage over virtually every other crop in 2007. We've never gone through a winter where corn futures have bumped over $4 for new crop prior to planting, so it will indeed be a learning period for all the grain markets to see how farmers respond to this incentive.
Expectations are for a 9.5-10 million acre increase in corn acreage, and a 5-6 million acre cut in soybean acreage. Most of the other acres will come from other crops, most notably cotton and HRS wheat acreage. Many minor crops may also see significant impacts.
But as is often the case, the report itself might end up being a bearish event as buyers are reassured that producers WILL PLANT SOMETHING! Just eliminating some unknown factors can provide price pressure. The question on everyone's mind is, will farmers steal enough acres away from soybeans and other crops to meet the projected corn demand?
Another question answered will be the corn use in the last quarter: Did feed use get cut significantly the past quarter? If so, it may imply we don't need as many corn acres in 2007 as thought, as the same response could be expected for the last half of the 2006/07 marketing year, and also continue into next year's marketing year (2007/08). With a 300 mb cut in corn use this year (repeated next year), that would effectively eliminate 4 million acres of needed 2007 corn acres.
So the numbers will be out tomorrow, and the debate about how they will change heading into the June final planting report will be on. So far, a very warm March has gotten planting off to a great start in southern areas, with relatively good soil moisture conditions in most areas (slightly dry in the Delta/Southeast and into the northwestern central Plains, ideal moisture in the middle Corn Belt, and too wet in the eastern Corn Belt). For the most part, fall and winter have cured a lot of dry areas, with just limited 'drought' remaining in the country. The warm temps seem to benefit everyone, but moisture conditions need to straighten out a little more for a 'bumper' to be assured.
Bearish weather would be wet in the west (with intermittent planting periods), dry in the east (which is similar to the forecast the next 5-10 days). Bullish weather would be cold and wet everywhere, as we start planting (especially in the eastern Corn Belt).
So far this week (and month), the market has exhibited significant weakness in corn, and strength in soybeans (especially 2008 forward). Of particular interest has been the weakness in nearby corn contracts, implying that the current corn use has declined, and the cash market situation is becoming that more abundant stocks of cash corn are available. For corn, this has meant a terrible early spring basis. Is this tipping the hat of the stocks report, with higher stocks than anticipated? The May nearby contract has dropped nearly 60c from its high, just a month ago, and is starting to look quite toppy on technical charts.