Potential Market Movers

Potential Market Movers

June 30^th is an especially important day for the grain markets.

The grains have been on an impressive run, advancing over 50% in only 10 months.[1] Prices have been moving lower recently as market participants await critical information that will likely help set the tone moving forward.  On June 30^th the USDA will release two potentially market-moving reports.  Those are: #1 Quarterly Stocks Report #2 Acreage Report.

Quarterly Stocks Report

The Quarterly Stocks Report provides the USDA’s estimated inventories for corn, soybeans, and wheat. With only one harvest per year, inventories dwindle throughout the year until being replenished at harvest. The difference in inventory levels from one quarter to the next is indicative of user demand. Higher or lower inventories relative to expectations can be a clue that the USDA may need to adjust demand assumptions. Ultimately the quarterly stock report figures are weighed against the USDA’s monthly ending stock[2] estimates to help market participants gauge whether usage is tracking with the USDA’s expectations.  The inventories on the September stocks report (i.e. the ending stocks for a crop year) become the beginning stocks[3] for the next crop year. 

For corn, ending stocks for the 2020-2021 crop year are expected to be 42% lower compared to the ’19-’20 crop year. This is only the 5^th time since 1960 that corn ending stocks have declined by more than 40% year over year.[4] Soybean ending stocks are projected to decline by an unprecedented 74% year over year. So far, the quarterly stocks reports have aligned with expectations and as such have provided the basis for corn and soybean prices to rally to 8- and 9-year highs, respectively. 

The USDA is estimating a decline in wheat ending stocks as well. Note however that the US is the world’s # largest wheat exporter (versus 1^st and 2^nd largest for corn and soybeans respectively). Given the global prevalence of wheat production, the US stocks report may not have the same market-moving potential when compared to corn and soybeans.

To be certain market participants will be looking for the June stocks report numbers to reflect that we are on pace to meet the USDA’s ending stock estimates on all three crops. Our friend Dan Cekander of DC Analysis is expecting the report to show inventories of 4.014 billion bushels for corn, 763 million bushels for soybeans, and 841 million bushels for wheat. 

Acreage Report

The Acreage Report provides estimates of the number of acres planted for certain crops. The acreage numbers are important given that production is a function of acres harvested and the crop yield per acre. The more acres planted, the more acres to potentially be harvested.  

Not all planted acres end up being harvested. Crops can and do fail. Crop failures are usually due to adverse weather and/or poor local field conditions. Therefore, the USDA provides estimates for both the Area Planted and Area Harvested.[5] For the last five years, the Area Harvested as reported on the WASDE, has on average, represented 91% of the Area Planted for corn and 99% of the Area Planted for soybeans. Ultimately production estimates are derived by multiplying the Area Harvested by the Yield Per Harvested Acre. 

Note that the June Acreage Report is preceded by the March Planting Intentions Report. The difference between the two reports is that the March Intentions Report is compiled by asking farmers how many acres they “intend” to plant for each crop, while the June Acreage Report is compiled by asking farmers how many acres they “did” plant for each crop. 

The March Planting Intentions Report surprised many market participants this year by providing lower than expected estimates for corn planted and soybean planted acres. The estimates were for 91.14 million acres for corn, compared to the average analyst guess of 93 million acres, and 87.6 million acres for soybeans compared to the average analyst guess of 90 million acres. 

We believe that the market is looking for an increase in the acreage numbers for corn and soybeans in the June report. Overall, the trade will likely view anything under 93 million acres as a supportive indicator for corn. Likewise, anything under 90 million acres will likely be a supportive sign for soybeans. We believe that the opposite is true and that corn prices may face additional pressure in the near term if acreage exceeds 93 million, the same would be true for soybean prices with an acreage number north of 90 million. 

Markets at a Juncture

Spot corn futures prices are currently off more than 15% from the recent high made on May 7^th. Spot soybean prices are also down more than 15% from the recent high on May 12^th. We believe that the price volatility is largely related to weather forecasts in key growing areas. There has been concern regarding dryness across many important production areas. Recently however the forecasts have turned slightly more favorable putting downward pressure on prices.[6]

The reports on June 30^th have the potential to move the markets. However, in their wake, it is likely that the focus will quickly turn back to the weather. We continue to point out that supplies of corn and soybeans are very tight relative to expected demand. So tight in fact that it will likely take 2 or more growing seasons to rebuild inventories back to where they were only one year ago. As such we expect continued price volatility in both directions. 

Note that options are available on Teucrium’s ETFs. Please speak with your financial advisor and/or broker for more information. 

[1] Percentage performance of the S&P GSCI Grains Index from August 7^th 2020 through June 17, 2021. 

[2] Ending Stocks (also called carry-out): the amount of the commodity that will be available at the end of the crop year, given the estimated or actual beginning stocks, production, and usage.

[3] Beginning Stocks (also called carry-in): The amount of the commodity that will be or is available at the beginning of the crop year from the previous year’s harvest.

[4] USDA

[5] Area Planted and Area Harvested are reported in values of 1,000 acres. 

[6] Favorable weather supports crop production (generally bearish for prices) whereas unfavorable weather hampers production (generally bullish for prices).