USDA Reports Preview The Joker

BY DARIN NEWSOM, DTN SENIOR ANALYST

JUNE 27, 2014

The June 30 Quarterly Stocks and Planted Acreage reports can play the same role as the
jokers in a standard deck of cards.
OMAHA (DTN) Before we get started, let me say that Im
not calling the June 30 reports a joke, but rather comparing
them to the jokers in a standard deck of cards. A quick
research of the jokers history shows it to be viewed either
as a wild card or the most important card in the deck
(highest trump). The same could be said for the Quarterly
Stocks and Planted Acreage reports.
USDA will release its Acreage and quarterly Grain Stocks
reports at 11 a.m. CDT Monday.

QUARTERLY STOCKS
The most important numbers in this report will be
soybeans and corn, with the soybean number taking the
trick. The average pre-report estimate for beans came
in at 387 million bushels, a number that immediately led
to some serious recalculation of the value of the old-crop
hand. Plugging that number into my quarterly demand
spreadsheet, if realized, would imply third-quarter usage
of 17.2% of total supplies (3.519 billion bushels). This would
be the lowest Q3 demand percent for more than 20 years.
Even the benchmark year of 2003-2004 (record-low ending
stocks of 112 mb and 4.5% ending stocks to use) saw Q3
usage of 18.8% of total supplies (2.638 bb). In 2009-2010
(another marketing year with 4.5% ending stocks to use)
the Q3 figure was 19.9%.
It is possible USDA could come in with this large of a
quarterly stocks number given that the June Supply and
Demand report (released on June 11) resulted in 2013-2014
ending stocks to use of 3.7%. It is possible that Q3 demand
did fall well short of its five-year average of 21% of total
supplies. But what if it didnt?
Heres a couple of different scenarios: If Q3 demand was
closer to what was seen in 2009-2010 (18.8%), USDAS
quarterly stocks number would be closer to 330 mb (near

the low end of pre-report estimates). If Q3 demand was

in line with the five-year average (21%), quarterly stocks
would drop to almost 250 mb. The real hole card is that
whatever the quarterly stocks number is (387 mb, 330 mb
or 250 mb) near-normal Q4 demand (12.5%) would result in
marketing-year ending stocks well below zero. Worst case
scenario, if USDA is near the pre-report estimate (387 mb),
Q4 usage would have to drop to only 7.4% (a new-record
low) of total supplies to come in at USDAs June ending
stocks figure of 125 mb.

PLANTED ACREAGE
Corn is the trump suit when it comes to USDAs acreage
numbers. Similar to 2013, much of the debate over the last
number of weeks has been about lost corn acres going to
soybeans due to flooding, predominantly in northern Iowa
and southern Minnesota. This is where the discussion bogs
down. Pre-report estimates are looking for corn acres to
INCREASE to about 91.8 million acres, up roughly 100,000
acres from the June Supply and Demand report estimate of
91.7 ma. Is it possible U.S. corn producers actually planted
more corn than expected, despite lost acres in Minnesota?
If so, will the differential between harvested and planted
acreage grow from the average 92% due to abandonment in
the July round of supply and demand reports?
If USDA is in line with the pre-report estimate of 91.8 ma,
and all other calculations are left unchanged from the June
Supply and Demand report, crop production would come in
just below 14 bb and 13.95 bb (the June figure was 13.935
bb). Total supplies would climb to 15.127 bb, leading to a
slight increase in both ending stocks (1.742 bb) and ending
stocks to use (13.0%). Its interesting to note that the latter,
ending stocks to use, would be similar to what was seen
at the end of the 2009-2010 marketing year when USDA
calculated the average annual farm price at $3.55.

WHAT THE MARKET IS SAYING

Gauging the commercial view of old-crop supply and

start rolling, they keep rolling. That being the case, a USDA

demand for soybeans is made more difficult by the time lag

acreage number near the pre-report estimate isnt out of the

in the report. Quarterly stocks are as of June 1, so should

question, according to what the market has been saying.

we look at how soybean spreads acted from the beginning

of March through the end of May, or do we look at what has
happened since early June? If we use the former, the nearby
futures spread saw its inverse strengthen from 1/4 cent at
the end of February to 68 3/4 cents when May came to a
close. Similarly, national average basis firmed from 43 cents
under (DTN National Corn Index minus the nearby futures
contract) at the end of February to 21 cents under at the end
of May. Both would imply Q3 demand was stronger for oldcrop soybeans than what the average pre-report estimate
would suggest.
As for corn acres, the new-crop December-to-March futures
spread has seen its carry strengthen from 6 1/4 cents in
early April to 10 3/4 cents this week. Measured on a full
cost of carry (total cost for holding the grain in commercial
storage) scale the spread is approaching bearish levels.
This would suggest that it is possible more acres were
seeded, living up to the old idea that once corn planters

So what about wheat? Neither the quarterly stocks number

nor the planted acreage estimate is expected to bring much
change to the overriding bearishness of the market. The
average pre-report estimate for Q4 stocks (ending stocks) of
603 mb is 10 mb larger than what USDA projected in its June
Supply and Demand report. All wheat planted is expected to
drop by about 100,000 acres to 55.7 ma.
When Monday has come and gone, it is highly likely that
the June 30 reports live up to their billing as the joker. As
a wild card, the reports have been described (correctly I
might add) as random and unpredictable. The knee-jerk
reaction could follow suit, contracts off on volatile trading
tangents. Others view this set of numbers as setting the
new standards going forward, or in other words, trumping
everything else that has happened up to this point.
Darin Newsom can be reached at darin.newsom@dtn.com
(AG/BAS)

QUARTERLY STOCKS (billion bushels)

6/1/14

Average

High

Low

3/1/14

6/1/13

Corn

3.724

4.050

3.046

7.006

2.766

Soybeans

0.387

0.450

0.334

0.992

0.435

Wheat

0.603

0.715

0.561

1.056

0.718

Grain Sorghum

0.080

0.087

0.073

0.173

0.041

Average

High

Low

3/31/14

Final 2013

Corn

91.79

92.30

91.00

91.69

95.37

Soybeans

82.17

83.20

80.50

81.49

76.53

ACREAGE (million acres)

6/30/14

All Wheat

55.71

56.00

54.80

55.82

56.16

Spring

11.95

12.20

11.20

12.01

11.60

Durum

1.79

1.82

1.69

1.80

1.47

6.69

6.73

6.65

6.68

8.06

Grain Sorghum

DTN Senior Analyst Darin Newsom has more than 20 years of experience following commodity markets and developing riskmanagement strategies. He focuses on how the structure of a market futures trends combined with price relationships
between contracts indicates what type of market exists and therefore which strategies are appropriate. He can be reached at
darin.newsom@telventdtn.com.
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