Big boost in planted acres suggests bumper crops; good news for ethanol and food companies, bad news for farmers

Corn and soybean prices plunged after the USDA on June 30 in its acreage report announced unexpected increases in planted acres for both corn and soybeans. However, soybeans more than recovered their losses the next day due to expected tight inventories even with a large crop. The USDA raised its planted acre estimate for corn by 2.4% to 87.035 million acres from the 84.986 acre estimate contained in the March Prospective Plantings report. For soybeans, the USDA raised its planted acres estimate by 1.9% to 77.483 million acres from 76.024 million acres. The number of acres planted with corn was the second highest since 1946 (behind 2007) and the planted soybean acres were a record.

The USDA raised its estimate for harvested acres of corn by 3.0% to 80.107 million acres from its last estimate (contained in the June World Agriculture Supply and Demand Estimates or WASDE) of 77.8 million acres, which suggests that the USDA in the upcoming July 10 WASDE report is likely to boost its production estimate by a similar 3.0%, assuming no change in yield. For soybeans, the USDA raised its harvested acres estimate by 2.1% to 76.547 million acres from 75.0 million acres, suggesting a 2% boost in the soybean crop size.

Corn prices have now plunged by 25% in the past month and soybean prices have fallen by a net 8.5% due to the combination of lots of planted acres and favorable weather. The drop in corn prices is particularly good news for livestock producers and ethanol companies. Ethanol companies have been in dire need of some positive news after struggling through a long period of unprofitable production economics. The ethanol- corn crush margin has now improved to 41.5 cents per gallon, the highest level since last September. That spread hit a low of 14.2 cents in early April, which after taking account other operating costs means that most ethanol producers were losing money on every gallon of ethanol they produced. Ethanol producers could still use a much bigger profit margin, but the likelihood for a bumper corn crop this year means that ethanol producers can breathe a lot easier that the high for corn prices for this year may already be in the rearview mirror.

Look below at the Commercial Tracker and you will see how the smart money is posturing in soybeans and corn. Email me at Gary@crbtrader.com for a report on how to use the Commitment of Traders Report. Just put COT in the subject line.

The numbers below represent the Commercial Net Traders positions taken from the weekly Commitment of Traders (COT) report released by the Commodity Futures Trading Commission each Friday. You will find a 12-month high and low with the past 2 weeks of data. To see the past 52 weeks of commercial data please visit www.pricecharts.com. Simply open Analysis under the Resource category at the top of the screen and click on the Commercial Tracker on the left side selection menu. You will find this to be a very interesting presentation of the commercial COT information.

To view the entire year of commercial data please visit www.pricecharts.com.

Fundamentals:
SOYBEANS—November soybean prices fell to a two-month low before recovering. Bearish factors include (1) the USDA’s June 30 hike in its U.S. soybean acreage estimate to a record 77.483 mln acres, +1.9% from a March estimate, (2) the U.S. soybean crop 68% good-to-excellent condition as of June 28 vs. 58% last year, and (3) the -4.3% m/m drop in May U.S. soybean use as demand for animal feed declined. Bullish factors include (1) the USDA’s June 10 cut in its U.S. carry-over estimate to a 32-yr low, and (2) strong foreign demand for U.S. soybean exports at +11% y/y Sept. 1-June 18 (U.S. soybean exports to China +41% y/y). As of June 23, large specs held a large long position of 121,317.
Soybean summary: 2008-09 crop 2.959 bln bu (+10.6% y/y), 2008-09 U.S. carry-over stocks of 110 mln bu (-46.3% y/y), 2009-10 global carry-over of 51 MMT (+22% y/y).

CORN—Dec corn prices fell to a six-1/2 month low. Bearish factors include (1) the USDA’s June 30 unexpected hike in its 2009 U.S. corn acreage estimate to 87.035 mln acres, the second largest amount of U.S. corn acres since 1947, (2) the 72% good-to-excellent condition of the U.S. corn crop as of June 28, vs. 61% last year, and (3) the 33% y/y decline in U.S. corn exports from Sept. 1-June 18. Bullish factors include (1) the USDA’s June 10 cut in its 2009-10 U.S. corn production estimate to 11.935 mln bu which led to a cut in its global carryover estimate, and (2) the recent fall in the dollar index to a six-1/2 month low, boosting U.S. corn export prospects. Large specs as of Jun 23 held a large long position of 127,533.
Summary: 2008-09 crop 12.101 bln bu (-7.4% y/y), U.S. 2008-09 carryover 1.60 mln bu (-1.5% y/y), global 2009-10 carry-over 125.46 MMT (-9.4% y/y).

Legend:
CC  - consecutive closes
UTL - uptrend line
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