US Acreage Decline: What's the Bottom Line? — US Prevent Planting Assessment and Impact on Supply & Demand

Rabobank assesses the corn prevent plant acreage in the US and what it means for global corn supplies.

US Prevent Corn Planting’s Impact on Production

US Planted Acreage

Given the continued delay in US corn plantings, Rabobank expects the USDA to further reduce their forecast for US planted acres while leaving soybean plantings relatively unchanged. Using insights from our crop insurance teams, we expected an unprecedented amount of corn acres being filed as prevent plant, following excessive soil moisture and flooding. The USDA has already began to reflect some of the impact in the most recent June WASDE by reducing US corn plantings by 3m acres to 89.8m acres. However, we estimate that this acreage reduction is not enough. We have calculated about 7.4m acres of corn prevent plant acres which will prompt the USDA to make additional large cuts to acreage, moving planted acres closer to our estimate of 86.7m acres. However, the question will be whether such a large shift will already occur in the USDA’s June 28 acreage report or only at a later stage, e.g. in the August WASDE, when larger amounts of official prevent planting numbers are available.

US Yield and Production

Final US insurance dates for corn plantings, which range from May 10 to June 5, have long passed and so have, or soon will be, the additional 25 days of late plantings. While we see sizeable downside to the USDA’s acreage estimate we believe it is too soon to write off yield to as low as 166 bpa. USDA rates corn conditions at below 60% good or excellent, which is the lowest rating since 2002. However, this is on a delayed crop, with emergence almost 20% behind average. Discounting trend yield by 10 bpa at this point in time might be possible, but to us seems aggressive and we therefore use a yield estimate of 171 bpa. If crop conditions do not improve in the key yield-determining months, then bigger yield cuts would be justified.

Flooded-cornfield_US_Fig1

Impact on Regional Supply and Basis

Production losses and logistic delays due to the weather will cause price dislocations. The majority of the corn acres lost are expected to be in the Eastern Corn Belt, while states on the western and northern portions of the growing region will see higher production. Although some of the production losses are known and priced in at current values, supply dislocations have the potential to bring volatility to cash prices and CBOT Corn prices. As the season progresses, domestic feed markets will need to pull corn from non-traditional locations such as the record crop in North Dakota. There will also be a need to buy bushels away from farmers with larger than normal corn inventories and, depending on yield, there may also be a need to ration demand and exports.

Impact on Soybean Plantings

Price divergence has also occurred between commodities and Indiana’s soy-to-corn price ratio dropped to below 2.0, for example. Although soybean plantings have also been delayed we do not believe it will have a measurable impact on planted acres. In typical years, farmers who could not plant corn in a timely fashion would switch acres to soybeans. We do not expect a major change to US soybean plantings due to a lack of financial incentive, delayed soybean plantings, and the fact that core Midwest states have also already exceeded the final insurance date for soybeans.

Global Impact: Others Fill the Gap

Annual global grain demand in the last ten years grew by 40m metric tons (mt), with the growth in the last two years at only 30m mt and 20m mt respectively. Considering a reduction of US corn production by 26m mt YOY (Rabobank’s current forecast) or 19m mt (USDA’s current forecast), or even 37m mt (assuming the USDA’s yield and Rabobank’s acreage), other countries will have to fill the gap. Key producers in the world outside of the US are expected to produce a total of 100m mt more grain YOY, which can be used to offset the US corn shortfall. The 100m mt more grain includes a recovery in global wheat production in 2019/20 of almost 50m mt YOY, 12m mt more barley, as well as 17m mt of corn that was already harvested earlier this year in Argentina. Brazil’s safrinha corn crop is also forecast at a record and will bring an estimated 17m mt more YOY, as well as 4m mt more of other grains globally.

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