Out With The Old, Planting The New
Teucrium | March 12, 2021
Even while supplies of the ’20-’21 corn and soybean crops dwindle, the market will begin looking ahead to the ’21-’22 crop.
On March 31st, the National Agricultural Statistic Service (NASS) will be releasing the quarterly Grain Stocks Report and Planting Intentions Report. The trade will be looking for confirmation that stocks are declining on pace to work towards achieving USDA ending stock estimates by end of the crop year. Market participants are not expecting much change in the acreage figures compared to the estimates released at the USDA’s Annual Agricultural Outlook Forum in February. Still, printing the numbers in the Prospective Plantings and Acreage reports makes them official. The trade is expecting record combined planted acres of corn and soybeans. We expect these figures are already priced into the market.
Looking ahead to April, the trade’s attention will focus on US weather and planting progress. Investors should be aware of the historical seasonal futures price patterns (illustrated on page 4) for an indication of how markets might behave moving forward also keeping in mind that past performance is not necessary indicative of futures results.
’20-‘21 Crop
Record export sales to China has led to estimated year over year drawdowns in corn and soybean stocks of 22% and 77% respectively.
Many in the trade believe that the USDA is under-estimating US corn exports and therefore inflating their ending stock estimates. Export sales of the ’20-’21 corn crop stand at roughly 2.34 billion bushels. The USDA is estimating that ’20-’21 corn exports will total 2.6 billion bushels, suggesting that 90% of all expected corn exports have already been booked. Note that we are only about halfway through the marketing year. Dan Cekander of DC Analysis estimates that corn export totals are likely to be as high as 2.8 billion bushels. That would be 200 million bushels above USDA estimates.
The Quarterly Stocks Report, which will be released on March 31st, will shed light on how much corn the US had as of March 1st. The December report showed that there were 11.3 billion bushels of corn stored in the US as of December 1st 2020. The trade will want to see a meaningful reduction to that number to prove that we are on pace to at least get to the current USDA estimated carry-out[1] of 1.502 billion bushels.
Many analysts will be measuring the pace of stock drawdowns to support the thesis that the USDA is overestimating the ’20-’21 carry-out.
US soybean export sales currently stand at approximately 2.2 billion bushels, accounting for nearly 99% of total soybean exports estimated for the ’20-’21 crop year.[2] What’s more, roughly 76% of those sales have already shipped.
As such, the US soybean supply is, for all intents and purposes, as low as it can go. In trade speak the US soybean supply is likely at “pipeline” levels. With the expected soybean stocks/use ratio under 3% it makes little difference whether the USDA lowers their ending stock estimates from here. At current stock levels, it is the markets job to price ration supply to fit demand in an effort to keep the pipeline free flowing.
’21-‘22 Crop
Coinciding with the Quarterly Stocks report, NASS will also be releasing the annual Prospective Plantings report. Farmers will optimize profitability by planting those crops with the highest production margin and take advantage of current price levels. Once again, the trade will be looking for the Prospective Plantings Report to match the figures released at the Ag Outlook Forum last month. Those estimates showed a record 182 million acres combined plantings for corn and soybeans.
Using the USDA estimated yields, US farmers are expected to produce record corn and soybean crops for the ’21-’22 crop year. Still, a record harvest may only slightly improve corn and soybean balance sheets. Notably, the USDA’s ’21-’22 balance sheet estimates show little to no change in the stocks/use ratio for corn and soybeans. It is likely to take multiple crop years to rebuild corn and soybean stocks back to levels we saw in ’18 –’19. This explains why we have seen new crop futures contracts outperform old crop contracts these last few weeks. Keep in mind that our corn and soybean ETFs hold positions in the December and November contracts respectively, providing exposure to new crop prices.
How’s the Weather?
Production is largely weather dependent. Current drought conditions extend from Texas to North Dakota. It is abnormally dry over much of Minnesota, and parts of North Western Iowa are experiencing extreme drought conditions. It is still too early in the season for US weather to have a big influence on market prices. That said, we are getting closer to the spring planting season, where planting progress and initial crop conditions will be coming under the microscope.
The USDA will begin releasing their weekly Crop Progress reports in April. You can follow us on Twitter (@TeucriumETFs) where we will be Tweeting the updates weekly. The trade will be looking at the pace of plantings for any early indication of problems getting the crops in the ground. From there focus will shift to crop emergence and initial crop conditions.
‘Tis the Season
Past performance is not necessarily indicative of future results. Still, the trade is likely to look to seasonal patterns for an indication of how prices may trend. The charts below show the 20- and 30-year seasonal price patterns for both corn and soybeans. You can see that historically, corn futures prices have trended lower between March and April and soybean prices more or less trade sideways. Come April however, prices for both crops have historically trended higher right through late Spring. As discussed above, springtime brings with it a focus on weather, planting progress and early crop conditions. Furthermore, the crop that is planted in the spring will not be brought to market until the fall. This means that corn and soybean supplies will continue to be drawn down until the new crop is harvested. Historically this has led to price advances through the spring.
In fair weather years, a downtrend typically begins in the summer months as the market becomes more confident in the yield estimates and begins to price in the coming harvest.
Source: Signal Trading Group (www.signaltradinggroup.com) Used with permission. Past performance is not indicative of future results. About the Data: The seasonal chart above provides a historic reference of past trends for the corn market. Average prices over the 20- and 30-year periods reflective of daily 1st month (spot month) contract data from January 1, 1991 to December 31, 2020
Source: Signal Trading Group (www.signaltradinggroup.com) Used with permission. Past performance is not indicative of future results. About the Data: The seasonal chart above provides a historic reference of past trends for the soybean market. Average prices over the 20- and 30-year periods reflective of daily 1st month (spot month) contract data from January 1, 1991 to December 31, 2020
It’s worth repeating that past performance is not necessarily indicative of future results. There is no guarantee that futures prices will follow the historic seasonal patterns in 2021. As an additional note, there are options listed on our Corn and Soybean ETFs. Options can be an extra tool to help manage risk in these markets. Please speak with your financial advisor or broker for more information.
[1] Carry-Out (also called Ending Stocks): The supply available at the end of the crop year, given the estimated or actual beginning stocks, production, and usage.
[2] USDA WASDE March 9, 2021