Corn Plantings Delayed with no Relief in Sight
This report first appeared, with short and long term trade strategies, in the May 24th, 2019 issue of our Weekly Market Letter. Please subscribe or take a free trial today.
Grain markets normally look ahead to monthly USDA supply/demand reports or quarterly grain stocks reports for volatility and price moves. However, this Tuesday’s (May 28) and the following Monday’s (June 4) corn planting progress figures could be the most consequential numbers in some time. This past Monday’s report showed corn planting progress at 49% compared to 78% last year and a ten year average of 80%. This is the slowest corn planting progress for week 20 on record. This indicates that there are 47.3 million acres left to plant, which is also a record. The previous record was set in 1995, when there were 33.1 million acres left to plant as of week 20.
Prevent Plant Dates Approaching
The prevent plant date for North Dakota, South Dakota, Nebraska, Missouri and Kansas is May 25th. As of last Sunday there were 13.67 million acres left to plant in these five states. Over the last seven days, these states have received an additional 2-4 inches of rain, with a swath of Kansas receiving the 5-6 inches. The decision date whether to enter acreage in prevent plant insurance for these states has arrived. The prevent plant date for Minnesota, Wisconsin and Iowa is coming up on May 31st, and the prevent plant date for Illinois, Indiana, Ohio and Michigan is June 5th.
Rain Delays Continue
After the excessive rainfall this past week, analysts are expecting the planting progress in Tuesday’s report to come in at a range of 60% to 70%. We feel that the number will come in at the lower end of that range, but for the sake of argument, we will use 65% in our analysis. This would be down from 90% last year at this time and a ten year average of 90%. It would leave 32.5 million acres left to plant going into the first week of June.
Eastern Corn Belt states are well behind normal as well, with Illinois at 24% complete as of May 19th versus the ten year average of 83%, Indiana 14% complete versus a 68% average, Michigan at 19% versus a 61% average, and Ohio 9% planted versus 62%. The area still left unplanted in these four states totals 18.33 million acres, roughly 20% of the prospective plantings area for region. Illinois has the largest unplanted amount at 8.5 million acres.
The latest QPF seven day forecast models indicate that the rains will not let up. They continue to show an excessive wet pattern for Kansas, Missouri, Nebraska, South Dakota, Iowa, the northern half of Illinois, southern Minnesota, Wisconsin, Michigan and northern Indiana through May 31st. The latest NWS 6-10 and 8-14 day outlooks for the Midwest continue forecast above normal precipitation from May 29th to June 6th. This is not conducive for producers to catch up.
Yield Loss Potential
While the trade has been focused on potential switching of acreage to beans or seeing the acreage entered into prevent plant, let’s turn our attention to the potential effect on yield with such a late planting schedule.
A recent study by the University of Illinois showed that there is a clear reduction in yield when corn is planted after May 20th. There have been seven years since 1985 in which plantings were more than 10% behind the average as of that date: 1993, 1995, 1996, 2002, 2009, 2013, and 2019. The worst is 2019 at 32% behind average.
The study showed that when plantings were 10% or more behind, the chances of corn yield coming in below trend was 83%, with an average loss of 6 bushels per acre. The late-planting years of 1993 and 1995 saw yields come in 10 bushels below trend.
Supply Could Tighten Severely
We can look at our what-if scenarios in the supply/demand tables with a bit more confidence as the rain delays get more pronounced. We think it is very likely that planted area could fall 4 million acres from the current estimate and that it could possibly decline by as many as 5.5 or 7 million acres. We have also lowered our yield estimate to 170 bushels per acre, which might be optimistic given the analytical data. Using the USDA’s demand numbers, the 4 million-acre reduction in planted area would put ending stocks at 1.337 billion bushels, with a stock to usage ratio of 9.1%. This would be down 1.148 billion bushels from the May USDA estimate.
A “black swan” event, with a 7.0-million reduction in acreage or a 165 bushel per acre yield would take ending stocks below 1.000 billion bushels for the first time since 2012/13, when they came in at 821 million.