Following the release of the USDA 2012 Prospective Plantings Report today, CME Group hosted an expert panel on the Chicago trading floor to discuss the projections, and what they mean for grain markets. Bill Tierney, chief economist at AgResource; Scott Shellady, Derivatives Manager for ICAP US; and Jerrod Kitt, Director of Research at Linn Group each weighed in. Some of their thoughts on the report on expected plantings this year:
Shellady called the USDA corn acreage projection of 96 million acres, “not too far out of expectations.”
“It will be interesting to see what volatility does,” he said. “With this number, although it’s not that exciting, there is a lot of open interest in the upside calls… If we get a 30-40 cent rally in corn, I’d like to see what that does to those upside calls and that volatility.”
The Wall Street Journal reported that the 96 million acre projection would mean the largest corn crop since 1937 when farmers planted 97 million acres.
“This is going to give us our first snapshot. From here on out, we’re going to have to take a much, much closer look at the cash situation in the country,” said Shellady.
“The big surprise in soybeans was the acreage number,” said Tierney. The report forecasted 73.9 million acres planted for soybeans, 2.1 percent below the industry average of expectations. Tierney added that in the last 29 years, there have been only two years where the report was lower than this relative to expectations. “This is a somewhat unusual situation,” he added.
Kitt added that “We wouldn’t be surprised if we added 2 million soybean acres on this latest run up,” based on reports of a shortage in seed corn. Tierney disputed that claim saying that weather, not economics, has more to do with an acreage expansion beyond USDA projections.
“The main thing that I saw was an overall decline in total wheat acreage,” said Kitt of the 12 million acreage projection. Industry expectations before the report were about 13 million acres. “Versus the trade expectations, this is pretty supportive,” said Kitt.
“I think the USDA hit this one out of the park,” he said, calling the wheat acreage number “right on the nose.” Competition for acreage, especially in the Dakotas, is “cutthroat” he added, noting that wheat must compete with several other crops like barley and oats for acreage there.
Kitt also said factors like wheat deregulation in Canada have complicated the wheat market, noting that now the U.S. and Canadian wheat stocks can almost be pooled together.
Get more analysis on the report from the CME Group Market Commentary page.