Quick Thoughts – Crop Progress (April 28th)
The USDA is set to release the weekly crop progress report later today, and we expect substantial improvement in the amount of corn that has been put in the ground versus last week’s total of 6%.
- As we mentioned last week, we thought the weather forecast was conducive to a constructive week down on the farm, and we now expect that 15% of the corn crop (+/- 1-2%) will have been planted;
- The multi-year average is 31%, so the current pace is still sluggish, but to provide some perspective, at the same time last year, only 5% of the crop was in the ground and the crop year ended with the largest harvest in history;
- Having said that, it is too wet and too cold in key areas in the Midwest, which could make this week substantially less productive than last;
- We remain largely unconcerned at this point about the progress of U.S. corn plantings and its potential impact on acreage and yield, keeping in mind that last year, in a single week, U.S. farmers planted 41.9 million acres of corn, an area equivalent to the state of Wisconsin;
- However, our level of concern will rise should progress still be sluggish by mid-May.
It bears mentioning that the International Grains Council has already cut its forecast for the U.S. corn harvest due, in large part, to sowing delays. We aren’t there yet, of course, as we see these worries as premature, but it is clear that the risks are mounting, at least in the eyes of some commentators.
It also appears that speculative money was caught a bit flat footed by the upward move in grain prices last week, as there was a decline in bullish bets (Exhibit 1) in corn futures.
- This actually makes us more comfortable on the margin on our fundamental view of corn (long) recognizing that hedge funds have not, historically, been the best traders in the agricultural complex.
While we continue to update investors on issues related to supply (pace of planting, among other issues) the basis of our bullish bias on corn is demand (ethanol, export and feed) and the data there continues to support our thesis. In addition to the impact inflation in soft commodities may have on the U.S. consumer, higher corn prices will, eventually, (though likely not this quarter) negatively impact margins at name such as ADM, TSN and SAFM.