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Tuesday, April 05, 2016

Corn the flavour of the quarter

By Angus Brown  |  Source: USDA, CME

Key points

  • The USDA quarterly acreage report forecast a large increase in US corn acreage for the coming year.
  • Higher corn acreage is at the expense of spring wheat and to a lesser extent soybean acreage’s.
  • More corn and less spring wheat is negative for feed grain and positive for milling wheat.

2016-04-05 Corn Flavour Of The Month Fig1

2016-04-05 Corn Flavour Of The Month Fig2

2016-04-05 Corn Flavour Of The Month Fig3

The United States Department of Agriculture (USDA) surprised the market with its quarterly acreage report on all the three major US crops. As always, the market reacted strongly to the new information, with corn tanking and wheat and soybeans seeing some support.

The USDA see a record corn plant going in this spring, with the March Quarterly forecast coming in at 96.3 million acres.  The driver for the stronger corn acreage has been weak prices in general, which makes the higher yielding corn more attractive.  Figure 1 shows that the increase in the corn acreage over the December estimate was 4%. 

Corn acreages are expected to be their highest level since 2013, which obviously translates into increased production under normal weather conditions.  At current estimated yields, the increase in corn acreage will see a 12.7million metric tonne increase in US production.  This increase in corn production is equivalent to half this year’s Australian wheat production, so it is a big deal.

Obviously with corn acreages rising, acreage for other crops had to suffer, but it seems there were some dormant acres added for corn.  The March all wheat acreage estimate was down 3% on December, with spring wheat acreage down 16% to make way for corn.  All wheat acreages are down 11.6% on last year.

Soybean acreages were also down, but only by 0.3% as soybean planting conditions remain good, and prices are reasonably attractive relative to wheat and corn.  Compared to last season, soybean acreages are down 3.4%.

As expected, the surprise upgrade in corn acreage and expected production saw corn prices fall significantly.  The CBOT spot corn contract fell 15¢, or 4.2% to a new 18 month low of 351¢/bu (figure 2).  Wheat found some support on the back of the lower acreage, moving back towards its two month high of 477¢/bu.

Soybean prices (figure 3) found continued strength on the back of the lower acreage estimate, having already been driven higher by expected stronger demand for oilseeds from China.

What does this mean?

US spring wheat is largely hard wheat, which is roughly equivalent to the APW wheat produced here, and as such lower production in the US is good for local prices of milling wheat.  Additionally, lower acreages mean that any crop issues, leading to lower yields will be exacerbated.  So, stronger prices, and more volatility for milling wheat is in store, relative to what was expected last week.

On the other hand, feed grains are driven by corn, and more corn acreage obviously means lower prices, and less volatility in prices is to be expected for the feed segment of the grain market.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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