By Adam Graves, Global Risk Management Inc.

With the market having now digested last week’s 6/30 USDA Acreage report and the corn and soybean growing seasons in full swing, it was once again thought valuable to revisit the topic of acreages. As a refresher, in the 3/31 Prospective Plantings report the USDA projected 2021 corn acreage at 91.1 million acres and soybean acreage at 87.6 million acres. In that report, with fundamentals pointing to stronger than released acreages, the forecasts came as a surprise to the market as both figures were lower than market expectations. In fact, that report yielded the second largest shortfall in these forecasts relative to expectations in history. All in all, the March report left the market wondering just how many more corn and bean acres could go into the ground as the strong demand pull for both commodities has continued to weigh on their respective balance sheets.

As for the 6/30 report, with a fair bit of variance in analyst forecasts but consensus around ideas of a notable pickup in acres, there was quite a bit of optimism in the market. That said, the USDA once again delivered deficient corn and soy acreage figures compared to sanguine market expectations. While the corn acreage estimate at 92.7 million acres was up roughly 1.6 million from the March report, the average trade guess was for a 2.7 million acre jump. The new soybean acreage estimate at 87.6 million acres was even more disheartening, as it represented a 1.4 million acre shortfall versus average market expectations and was below the entirety of the range of estimates. On aggregate, this season’s corn and soy acreage of 180.3 mil. ac. was just marginally behind the 2017/18 high of 180.4 mil. ac. This fact calls to mind a claim made in Global Risk Management’s April acreage article that a substantial pickup in acres might be tough to come by given aggregate acres were already near the peak and that corn and soy acres simply don’t shift that significantly between 3/31 and what actually goes into the ground. (Find the GRM article of reference here: http://www.grmcorp.com/revisiting-corn-and-soy-acreages-following-initial-projections/) While these figures do not represent “final” acreages, there is little precedent for the planted acreage figures being raised from here on out. Corn acres have not increased from end-June to final in the last eight years and have only proved higher than June in five of the last 32 years. More of the same on soybean acres, as only two of the last 12 years have seen higher final acreages than what was reported at the end of June.

With this important USDA report now on the backburner, the lower than anticipated corn and soybean acreage estimates increase the already crucial need for ideal weather over the next month and a half to keep yields intact. This is especially important this year as the demand sides of both balance sheets continue to look hefty. With considerable dryness in the northwestern part of the corn belt leading to slippage in crop condition ratings over the last few weeks, below-trend yield ideas are starting to arise though updated weather forecasts have called for rains and less threatening temperatures over the next couple of weeks. Don’t anticipate any change to the current USDA yield figures this month, as they have a strong tendency to defer revisions to the figure to the August WASDE report.

Commodity trading is not suitable for all investors. There is an inherent risk of loss associated with trading commodity futures and options on futures contracts, even when used for hedging purposes. Only risk capital should be used when investing in the markets. Past performance is not indicative of future results.