by Darin Newsom, DTN Senior Analyst
OMAHA (DTN) -- Pre-report estimates for planted acreage has corn increasing only slightly to roughly 96 million acres from the March 30 Prospective Plantings estimate of 95.9 ma. This could open the door for a larger-than-expected number given the poor crop conditions at this time. Don't be surprised if the June update surpasses the high side of estimates at 96.8 ma. USDA tends to increase corn acres 1.3% from March 30 through the June update, implying corn acres of 97.1 ma.
Soybean acres are expected to see the largest jump of roughly 1.7 ma from the March 30 report through the June update. Much of this is due to double-cropping following an early winter wheat harvest after new-crop prices became more attractive when the November futures contract gained on December corn. However, given the poor crop conditions noted over the early part of the growing season, even the high side of estimates at 76.5 ma might not be enough to adequately rebuild domestic stocks. USDA tends to decrease soybean planted acres from March to June by about 1.1%. This would be quite a bullish surprise if it occurred in 2012, as it would imply only 73.1 ma.
Wheat acres are expected to increase slightly from the March 30 report, with planted spring wheat area projected to be up 680,000 acres.
All-cotton planted acres should see only a minor decrease in the June update, with analysts talking about USDA's likely conservative approach to the crop. The pre-report average estimate is pegged at roughly 13 ma as compared to the March 30 prospective plantings figure of 13.2 ma.
The bottom line is this: barring a huge surprise in acreage numbers, market reaction should be bullish. Even in crops where acreage is expected to increase, it isn't expected to be enough to alter the outlook for continued tight ending stocks and ending stocks-to-use ratios in 2012-2013. Deferred corn spreads are showing only a small carry, while the inverse in the new-crop soybean forward curve continues to strengthen, both indicating the commercial side of the market thinks production will come up short.
Heading into Friday's quarterly stocks report, keep in mind that this is the wildcard in USDA's hand. Unexpected -- and unexplained -- increases or decreases are common and should be expected this time as well.
Pre-report estimates for corn quarterly stocks are 3.182 billion bushels, the smallest Q3 stocks number since the 3.04 bb in June 1998. If USDA comes in near this estimate, it would reflect slightly above-average quarterly demand of 20.9% of total supplies, putting stocks 5% below average of Q3 stocks to total supplies. The 23.6% of supplies to total supplies would be the smallest since the record year of 1995-1996. Carrying this estimate out through the fourth quarter using only average demand to close out the year implies ending stocks of 778 million bushels, below USDA's June estimate of 851 mb. It would not be surprising to see USDA make a bearish "adjustment" to Q3 demand, setting the stage for a larger 2011-2012 ending stocks and 2012-2013 beginning stocks number.
Soybean quarterly stocks are expected to come in at 640 mb, implying Q3 demand was slightly above the five-year average. This would also put Q3 stocks to total supplies at about 19.5%, slightly above the four-year average of 18.4%. If realized, and carrying the estimate out through the fourth quarter using five-year average demand, ending stocks could be calculated at 203 mb as compared to the June supply and demand estimate of 175 mb. While this could be viewed as slightly bearish, traders may find it difficult to believe given the lack of supplies in South American and China's still strong demand.
Wheat quarterly stocks aren't expected to be overly exciting with the average pre-report estimate coming in at 726 mb, slightly below the June supply and demand projection of 728 mb. If realized, this estimate implies slightly above five-year average Q4 demand of 15%, coming in at 15.9%. Ending stocks to total supplies would be 24.3%, larger than the five-year average of 22.1%.
Market action would seem to concur with pre-report estimates, with national average corn basis running well above its five-year high, soybean basis firm but just below the five-year high, and wheat basis in general holding firm. If USDA unleashes one of its legendary surprises, the market could choose to ignore the information based on the performance of the cash market over the last quarter. It could choose to do that, but most likely it won't.
Editor's note: Join DTN Senior Analyst Darin Newsom at 8:30 a.m. CDT on Friday for a discussion on the latest USDA reports and what the numbers might mean for the markets going forward. Sign up now at: www.dtnpf.com/promo/webinars.
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Posted with DTN Permission by Haylie Shipp