Views on commodities and energy
USDA’s March 31 planting report: Monday’s annual CBOT fireworks
As I drive across northern Illinois and Iowa, the heart of the U.S. Corn Belt, during the last week of March it’s hard to believe the planting season is just a few weeks away. Rivers are swollen, fields are flooded and there’s a dusting of snow. Undoubtedly, planting will be the focus of U.S. grain traders in the coming weeks with Monday’s USDA planting intentions report to kick off the season. The grain trade has been waiting for this report for months.
Gathered from USDA farmer surveys and other information like crop insurance applications, the annual seedings estimates are the first “hard” numbers on coming acreage the government provides and will give the trade the first official peek at what U.S. farmers intend to plant this spring.
The buzz around commodity trading desks ahead of the report was that farmers will decrease their corn seedings by about 6.2 million acres from the massive 93.6 million planted in 2007 – the largest amount of land planted to corn since World War II.
In line with that reduction, soybean seedings were seen expanding to 71.7 million acres, up 8.1 million from last year. The jump in bean acres is being largely tied to the cost/returns calculation for soybeans compared to corn when many farmers were making their planting decisions this winter. New-crop CBOT beans for Nov 2008 delivery gained on new-crop CBOT Dec corn from October to March, the ratio rising to 2.51 from 2.39. Soaring prices for nitrogen fertilizer — a key for corn yields — also weighed on corn versus beans as farmers made back-of-the envelope comparisons.
No matter what the USDA reports, weather will keep shifting final seedings. But more than any other plantings report in memory the 2008 intentions report on Monday will be a signal indicator for the grain trade. The markets have been obsessing over the “battle of acres” in the United States — the world’s top grain exporter — given record high grain prices over the past year fueled by world crop shortages, exploding biofuels production and soaring export demand, all driving food inflation.
So Monday’s report will likely light some more fireworks, especially after the big sell-off in Chicago Board of Trade markets on Friday as traders seemed unwilling to hold long positions going into the report. As if the grain market needs more fireworks given the unprecedented rallies and volatility seen in Q1 2008, the last day of the quarter should make sure the grain trade closes their March 31 books with a bang.
When the dust settles after the report, the grain market will settle into the more usual uncertainty offered by its traditional most influential player: Mother Nature. If the Midwest stays cool and wet in April, there’s always the possibility for some intended corn acres getting switched to soybeans, a later planted crop.