Commentary

Rural Voice July 18, 2019

At this time of year, market prices are typically determined by weather conditions and the development of the crop in the field.  Usually yield estimates, as driven by weather and crop development, are anticipated and the total production of each commodity can be projected in conjunction with the planted acreage estimates.  This year this task isn’t quite so easy.  Final planted acres are still up for debate and the late planted crops could face too short of a growing season, if the fall frosts come too soon.  Therefore at this time, we have an extremely large amount of uncertainty, both in terms of planted acres and final yields, depending on the duration and conditions of the growing season.   With these variables in mind where does the market go from here?  Well, short term the market has relaxed somewhat from its initial panicked reaction, to what appears to be a general acceptance that both US and world supplies should be reasonably adequate going forward.  Long term, as we potentially see changes in the estimates we discussed, the market will react correspondingly.  As the facts change market prices will also change accordingly. 

 

The USDA has shocked many in the trade, with their planted acreage estimates on corn.  While everyone was expecting acreage to fall substantially from the original prospective plantings, the USDA only lowered corn acres a relatively nominal amount.  Everyone knows about the difficulty that many areas had getting corn in the ground this year.  The constant rains throughout the spring pushed planting back beyond the preventative plant date for many growers, in many counties, and everyone knows of somewhere that corn wasn’t planted.  When you talk to many industry players, farmers, brokers, traders, etc. you find that most people do not believe the USDA’s estimates are accurate.  There is scarcely a report or commentary out there that does not suggest that the USDA is off on their acreage estimates.  From this many wonder why the market hasn’t reacted as anticipated from this thought and moved more aggressively and sustainably to the upside? 

It is interesting to notice that while it seems everyone is bullish versus the USDA estimates, the market has been fading recently, indicating that someone out there agrees with their evaluation, for the time being anyway.   Coming from this discussion it is helpful to examine the USDA’s methodology regarding their planted acreage estimates.  Shortly after the report was released on June 28th, I heard an interview with a lead statistician at the USDA, who explained their surveying procedure.  My take away from the interview is that their surveying ability is second to none, recognizing that the results are only as good as the information received.  For their June 28th report they surveyed farmers as to their planting intentions between May 30th and June 17th.  Keep in mind that this survey was for planting intentions, not actual planted acres and therefore the data demonstrates intentions that may or may not have materialized.  Therefore, an objection that one can have is that planting delays at this late date still prevented intended acres further.  The USDA recognizes this, and therefore for the August 12th report they will resurvey 14 lead states. 

To gather the initial data for the June 28th report the USDA completed two independent surveys.  The first survey was a phone survey.  USDA representatives called growers and asked them how many acres they had planted or intended to plant by crop, on all their acres.  This phone survey is massive and is likely not repeatable by any other group.  The reason I say that it is not repeatable is because of the sheer size of the review.  For this survey the USDA gathered data from 68,000 individual farms.  From this information they applied statistical techniques to determine this portion of their estimate.

The second portion of the survey involves the physical inspection of blocks of land.  USDA representatives go to the fields and survey what crop is actually planted in preselected blocks.  If no crop (or crops) is planted yet within that block, the USDA representative contacts the grower to determine planting intentions.  The survey blocks are each 1 square mile, and therefore could cover multiple different farmers.  In total this survey involves 9000 square mile blocks or 5,760,000 acres.  This survey involves 31,000 farmers.

Therefore in total the USDA surveyed 99,000 farmers to gather data for their June 28th report.   As we sit here today, we recognize that while it may not be completely reflective of the actual conditions in the field, it is not overly prudent to discount their information completely.  Therefore as the market prices faded from their highs the large commodity funds have been selling their positions, demonstrating that they do not want to be offside from the USDA’s data.  From this discussion the take away point today is that the market will likely drift until planted acres are confirmed on Aug 12th.

As we enter wheat harvest in Ontario quality has been top of mind within the trade.  With the widespread frequent rains experienced almost everywhere, concern of vomitoxin has been prevalent.  There have been reports of extremely high vom in parts of Indiana, however as harvest moved north into southern Michigan and northern Ohio quality has been better.  Hopefully this trend continues into Ontario and we see quality wheat.

 

 

At this time of year, market prices are typically determined by weather conditions and the development of the crop in the field.  Usually yield estimates, as driven by weather and crop development, are anticipated and the total production of each commodity can be projected in conjunction with the planted acreage estimates.  This year this task isn’t quite so easy.  Final planted acres are still up for debate and the late planted crops could face too short of a growing season, if the fall frosts come too soon.  Therefore at this time, we have an extremely large amount of uncertainty, both in terms of planted acres and final yields, depending on the duration and conditions of the growing season.   With these variables in mind where does the market go from here?  Well, short term the market has relaxed somewhat from its initial panicked reaction, to what appears to be a general acceptance that both US and world supplies should be reasonably adequate going forward.  Long term, as we potentially see changes in the estimates we discussed, the market will react correspondingly.  As the facts change market prices will also change accordingly. 

 

The USDA has shocked many in the trade, with their planted acreage estimates on corn.  While everyone was expecting acreage to fall substantially from the original prospective plantings, the USDA only lowered corn acres a relatively nominal amount.  Everyone knows about the difficulty that many areas had getting corn in the ground this year.  The constant rains throughout the spring pushed planting back beyond the preventative plant date for many growers, in many counties, and everyone knows of somewhere that corn wasn’t planted.  When you talk to many industry players, farmers, brokers, traders, etc. you find that most people do not believe the USDA’s estimates are accurate.  There is scarcely a report or commentary out there that does not suggest that the USDA is off on their acreage estimates.  From this many wonder why the market hasn’t reacted as anticipated from this thought and moved more aggressively and sustainably to the upside? 

It is interesting to notice that while it seems everyone is bullish versus the USDA estimates, the market has been fading recently, indicating that someone out there agrees with their evaluation, for the time being anyway.   Coming from this discussion it is helpful to examine the USDA’s methodology regarding their planted acreage estimates.  Shortly after the report was released on June 28th, I heard an interview with a lead statistician at the USDA, who explained their surveying procedure.  My take away from the interview is that their surveying ability is second to none, recognizing that the results are only as good as the information received.  For their June 28th report they surveyed farmers as to their planting intentions between May 30th and June 17th.  Keep in mind that this survey was for planting intentions, not actual planted acres and therefore the data demonstrates intentions that may or may not have materialized.  Therefore, an objection that one can have is that planting delays at this late date still prevented intended acres further.  The USDA recognizes this, and therefore for the August 12th report they will resurvey 14 lead states. 

To gather the initial data for the June 28th report the USDA completed two independent surveys.  The first survey was a phone survey.  USDA representatives called growers and asked them how many acres they had planted or intended to plant by crop, on all their acres.  This phone survey is massive and is likely not repeatable by any other group.  The reason I say that it is not repeatable is because of the sheer size of the review.  For this survey the USDA gathered data from 68,000 individual farms.  From this information they applied statistical techniques to determine this portion of their estimate.

The second portion of the survey involves the physical inspection of blocks of land.  USDA representatives go to the fields and survey what crop is actually planted in preselected blocks.  If no crop (or crops) is planted yet within that block, the USDA representative contacts the grower to determine planting intentions.  The survey blocks are each 1 square mile, and therefore could cover multiple different farmers.  In total this survey involves 9000 square mile blocks or 5,760,000 acres.  This survey involves 31,000 farmers.

Therefore in total the USDA surveyed 99,000 farmers to gather data for their June 28th report.   As we sit here today, we recognize that while it may not be completely reflective of the actual conditions in the field, it is not overly prudent to discount their information completely.  Therefore as the market prices faded from their highs the large commodity funds have been selling their positions, demonstrating that they do not want to be offside from the USDA’s data.  From this discussion the take away point today is that the market will likely drift until planted acres are confirmed on Aug 12th.

As we enter wheat harvest in Ontario quality has been top of mind within the trade.  With the widespread frequent rains experienced almost everywhere, concern of vomitoxin has been prevalent.  There have been reports of extremely high vom in parts of Indiana, however as harvest moved north into southern Michigan and northern Ohio quality has been better.  Hopefully this trend continues into Ontario and we see quality wheat.