Prospective Plantings & Eventful March Weather

March 31, 2016 04:41 PM

In wake of Thursday's Prospective Plantings report, I want to make a suggestion here that elicited profanity from Chip Flory that nearly took the paint of the walls. Corn acreage in particular shocked market bulls by coming in 3.6 million acres above the average pre-report trade guess at 93.6 million acres. The result was a dismal market performance in corn futures as the Dec contract fell 15 1/4 cents to close at $3.68 3/4. Optimism in the marketplace and on the farm when talking corn prices has revolved around the potential for a weather event to support higher prices.

What if March was that weather event? Well, not THE weather event, but a significant weather event, nonetheless. Stick with me here. Planting intentions are collected at the beginning of March and if we think back to the conversations early in the month, there may be a glimmer of hope. Farmers in Texas and Louisiana were the first ones on my radar, tweeting very early on that they were able to get into the fields relatively early. From there, temperatures in the Midwest began to warm quickly, and warmer soil temperatures had growers eyeing an early start which, historically has supported higher planted corn acreage.

Then it started to rain in the deep south. Frost hit HRW country later in March along with persistent dryness, and the upper Midwest took a turn for the cooler. The planting window which was about to be thrown open was closed for at least another two weeks. In other words, about the time USDA was tallying planting intentions survey data, the weather threw a cob in the pudding, and shut the door on an early start to plantings.

It must be considered that the optimism from early March has possibly eroded, and planted corn acres may decrease as a result of winter's last gasp in mid-March. A projected 93.6 million acres to corn carries the potential to miss the mark. Is that potential great enough that, once fully realized we shave off 3.6 million corn acres? I believe it is a strong possibility. In fact, if the weather continues to act in a push-pull fashion -- first appearing too good to be true, and then later proving itself too good to be true -- corn acres will suffer.

Once actual planted acres are tallied, a number closer to 90 million acres is more likely than the full 93.6. Once the trade catches wind of corn acres unplanted, or replanted late due to floods in the south, or perhaps even just corn planted on time rather than early, prices will respond. Of course beginning stocks will be a wet blanket on bullish sentiments, but every decrease in corn acreage will be magnified by the high expectations of a 93.6 million acre crop in the ground.

From today's perspective, a 15 cent price collapse in Dec corn futures is a tough pill to swallow. On the fertilizer side, it took the spread between one ton of anhydrous ammonia and expected new-crop revenue from -35.10 to just -3.16. The discount NH3 held to new-crop revenue all but dissipated.

As farmers and traders focus on the numbers from Thursday's USDA reports, those numbers which wreaked havoc on futures prices may be a supportive factor for prices later on. Here on March 31, we are in a completely different month than we were on March 1st. Optimism about an early start is fading and southern farmers are facing the real possibility of replanting at least some acres flooded out before they really even got off the ground.

There is still time for the national corn crop to go in the ground "early". But not nearly as early as we had thought at the front end of March. The degree to which that impacts planting decisions will ultimately play out in the market. With corn acreage expectations so high, it doesn't take much of an attitude shift to take a chunk out of those acres. I do believe it is possible we will lose 3.6 million corn acres between now and full national emergence. With acreage forecasts outpacing expectations, the market is set up to respond higher at the first sign of acreage decreases. With each passing day that corn is not planted, the potential to lose corn acres grows.

I do not mean to suggest the weather rally potential has been drained out of the market. On the contrary, with such a high acreage projection and such a bearish response from corn futures, March may have been a weather event that snuck under the market's radar. There is a long summer ahead of us. We have been talking El Nino, La Nina and Enso neutral weather potential to the point of nausea. That conversation has blocked our view of the trees with the forest. From here on out, the high acreage number and low futures price will each become more sensitive to negative news, and prices will respond higher much more readily to summer weather.