Fundamentals Bullish for Corn as Acreage and Stocks Lower

Includes: DBA, JJGTF
by: T. Marc Schober

A bullish surprise for the corn market Wednesday morning as estimated acreage planted and quarterly stocks were significantly lowered than expected. The USDA released two important reports on Wednesday, the Prospective Plantings and Quarterly Stocks of Grains.

Surprising the market, the USDA lowered the estimated corn acres planted to 87.9 million, down from the March estimate of 88.1 million acres. The consensus estimate was that corn planted acres increased to 89.3 million acres. Most weather and pricing models had also estimated an increase in planted acres.

“Planting got off to a rapid start in 2010 due to favorable conditions” in April, the USDA said in its report. “However, below-average temperatures and wet weather dominated much of the Midwest and portions of the Plains during the middle part of May, hampering the planting of the remaining acreage.”

The largest losses were in Iowa, down 200,000 acres, Nebraska, down 400,000 acres, South Dakota, down 350,000 acres, and Ohio, down 100,000 acres. The significant acreage loss in some of the highest yielding areas leaves us concerned about 2010 production estimates.

Soybean planted acreage for 2010 is estimated at a record high 78.9 million acres, as farmers who couldn’t get corn in the ground switched to soybeans. Planted acreage was up by 300,000 acres or more from last year in Iowa, Kansas, Minnesota and Nebraska, while the largest declines were in Arkansas and North Carolina. The increased acres could add further pressure on an already bearish new-crop fundamentals.

All wheat acreage is estimated at 54.3 million acres, up from the March estimate of 53.8 million acres, but below the 59.1 million acres planted last year.

Quarterly Stocks

Keeping the bullish momentum for corn going, the USDA released its estimate of quarterly stocks of 4.3 billion bushels, significantly below the consensus estimate of 4.6 billion bushels. Quarterly demand for corn equals 22.8% of total supplies, the largest since the 2005/06 marketing year. We believe the lower tests weights from the 2009/10 crop could be part of the reason for the lower than expected stocks.

Soybean stocks were also below expectations, as the actual estimate was 571 million bushels versus the consensus estimate of 587 million bushels. The low stocks will likely generate speculation about how the tighter stocks may affect the supply going forward.

Quarterly stocks of 973 million bushels for wheat were in 33 million above the consensus estimate, and 316 million above last year at the same time. This means wheat ending stocks for 2010/11 could climb above 1 billion bushels, the highest level since 1987/88.


The USDA also provided its annual update on the adoption of biotechnology seed use. The USDA estimated that 86% of corn acres planted in 2010 were planted with a biotechnology variety seed, compared to 85% last year, and up from roughly 25% in 2000.


Based on Wednesday’s report, we believe that corn has seen a seasonal bottom and the risk is certainly to the upside. Given the lower stocks and acreage planted, the market will start to contemplate the possibility of ending corn stocks falling below the critical 1 billion bushels levels.

Disclosure: No positions