corn planting

Will USDA Ag Outlook solve the Corn acre debate?

The market is looking ahead to see how many fewer corn acres will be planted this spring.

Corn bulls are eager to see this weeks USDA Ag Outlook Forum data. The big question is how many acres of corn will be coming out of production? The over/under for U.S. planted corn acres seems to be right around 90 million.

The bulls are saying we will plant fewer than 90 million acres of corn, while the bears are suggesting perhaps a slightly higher number. I'm personally siding with the bulls, thinking many U.S. producers are looking for ways to further reduce cash-flow requirements. Which ultimately means shifting more acres away from corn. I'm a little gun-shy however considering I was thinking the same thing last year at this time, only to later learn that U.S. producers planted +6 million more corn acres in 2016 than they had planted in 2015.

The other question is what type of "yield" should we be using for the national average? In 2014 we producers a record average yield of 171 bushels per acre. In 2015 we produced an average yield of 168.4 bushels per acre. In 2016 we produced a all-time new record yield of 174.6 bushels per acre. Just a simple average of the past three years is equal to a yield of 171.3 bushels per acre.

The trade however currently seems more comfortable in using a number closer to 170 or perhaps just a touch lower. I'm still curious and wondering what type of value we should be adding each year for gains in "technology"? It's just hard for me to digest using a traditional 20-year trend-line when we've seen such aggressive advancements in technology the past 5 to 7 years.

Looking ahead to the next few weeks, the bulls will continue to closely monitor South American weather as Brazil's second-crop corn production starts to enter a more critical stage. The bears are keeping a close eye on China, where there seems to be more headlines and talk surrounding a few recent shipments of Chinese corn to Japanese buyers.

There's also the headlines surrounding Mexican officials making trips to South America to negotiate buying corn from places other than the U.S.. As a producer I've made a couple of small sales on the recent run higher and now have 40% of our new-crop price risk removed. I've been a bit more aggressive with our soybeans sales, so I am content on waiting for either U.S. weather headlines or more macro interest from the funds to push prices higher.

In other words I'm in no real hurry at this stage of the game to get more aggressive. The bearish fundamentals have been on the table for a very long-time and are not a surprise to anyone. I'm thinking a U.S. weather story and fewer planted acres might eventually make the balance sheet a bit more interesting for the bulls.

Keeping my eye on the bigger ticket items... South American finishing weather; U.S. acreage and spring planting weather; and overall macro money-flow.

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