Pre-report trade estimates for corn in USDA’s ACREAGE report on Friday average just 86.7 million acres, down a whopping 6.1 million from March intentions and more than double the 3 million acre cut USDA already made in its June WASDE. It stacks odds against Friday’s figure showing an even bigger cut than that. If so, we could see only a modest post-report pop on “confirmation” the pre-release estimates are on target, but traders and farmers alike concluding all the bullish news is “in the market.”
Softening prices into summer could be setting up a re-run of the 1993 bull market. No one argues there haven’t been corn planting delays this serious since the 1993-94 spring monsoons. But take a look at the 1993 bull market in Figure 1. It unfolded like a 3-stage rocket and didn’t peak until February of ’94.
“Stage 1” was the initial rally from March through May. When the crop was finally reported as “finished planting” and rains finally began to subside, the market backed off through June as there was no chance of a drought and warm dry weather welcome.
A modest “Stage 2” took off when USDA cut acreage planted, percent to be harvested for grain and average yields in the July WASDE, but sputtered as prices were still above USDA’s average farm price forecast and weekly crop condition reports showed steady improvement. The problem, of course, was that while crop “appearance” might have been improving, corn that should be tasseling was barely shoulder high in July!
“Stage 3” of the 1993 bull market in corn blasted off when actual field-surveyed yields dropped for four straight months from August through November. The steady improvement in weekly crop condition had been cosmetic and hiding the dramatic adverse effect of late planting on yields that agronomists had been warning all season.
We’re setting up for a re-run of the ’93 pattern if Friday’s Acreage report doesn’t show an even bigger drop than traders already expect. The forecast for next week promises drying conditions for much of the soggy Corn Belt. Weekly crop condition reports could start to show improvement. If so, stages 1 and 2 of the 2019 bull market will be behind us and prices work lower so long as those weekly condition reports continue to show improvement.
Here is what it will take to launch “Stage 3” of this year’s bull market in corn:
The long-term forecasts are for the growing season to continue relatively cooler and wetter than normal. If so, that will cut GDDs (growing degree days) and slow maturation of an already extremely late crop.
When weekly crop condition reports begin to report the percent of the crop tasseling, it will be the wake-up call that this crop has far from “recovered” from late planting and LOTS of folks will be looking back to the 1993-94 “playbook.” Here’s how that unfolded:
Figure 2 shows that following the ’93 Acreage report, the July WASDE cut planted acreage by 2.2 million acres, acres for harvest as grain another 2.5 million acres, and expected yield by 4.7 bu. per acre. Yet after all that, the average farm price forecast rose only 15 cents per bushel. When crop progress reports showed pollination drastically behind normal, they cut the yield a bit further in the August WASDE. But look what happened to yield after that in Figure 2. It dropped significantly lower yet for three more months as combines rolled and the real impact of extremely late planting on yields became evident.
Stage 3 of the 1993-94 bull market was a rare event: A significant, contra-seasonal bull market right through harvest! It’s all setting up to happen again. Far from confirming this year’s high is “behind us”, a post-Acreage report slump in prices may actually be a buying opportunity ahead of 2019’s “Stage 3” rally late summer right through harvest. Throw in even a “hint” of early frost and it will be a buyer’s worst nightmare!