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Commodities

Back-to-basics approach could prevent jolt from USDA's planting report: Braun

FORT COLLINS, Colo. (Reuters) - The last day of March can be one of the year’s most volatile sessions in the ag markets, largely because of the planting intentions report from the U.S. government. This year, after an already wild month of trading, it is important for market participants to vet their own expectations after some big misses on last year’s reports.

The U.S. Department of Agriculture will publish its annual planting intentions report on Tuesday at 11 a.m. CDT (1600 GMT) along with quarterly grain stocks, which is another big market-mover.

On average over the last several years, final U.S. corn plantings are a little more than 1% different from what is reported in March, and soybeans vary by more than 2% from March to final. But even though these margins seem relatively small, analysts tend to miss the March number by the same amount, and the trajectory into June and then the final is not always a straight line.

Reuters polled 26 analysts for 2020 U.S. corn and soybean plantings ahead of Tuesday’s report, and on average they expect 94.328 million and 84.865 million acres, respectively. That would be a 5.2% rise for corn and an 11.5% rise for soybeans over last year’s area, which was cut drastically by historic flooding and rains. But the prediction ranges are relatively wide, suggesting some uncertainty among analysts.

The range of corn guesses is 3.9 million acres, the largest for this report since 2010, and the soybean range is 4.4 million acres, the largest since 2015.

It is also important to look at combined corn and soybean acres, which analysts on average pegged at 179.2 million acres with a range of 4 million. That would be the second-highest in history behind 180.3 million in 2017, and it may be sensible given the record-low wheat prediction of 44.98 million acres.

THEN AND NOW

The planting intentions report represents what farmers planned to do as of the date they were asked or the date they responded to USDA’s survey. That means it is always important to examine the time frame of the survey prior to each similar report.

This year, USDA’s statistics branch conducted the planting survey between Feb. 28 and March 18. New-crop corn futures fell 19.75 cents per bushel or 5% during that period, which is the largest outright and percentage decline for that period since at least 2005.

New-crop soybeans also set those same records with losses of 71.5 cents per bushel or 8% between Feb. 28 and March 18. After Thursday’s close, corn and soybeans were up 10 cents and 37 cents, respectively, from March 18.

The ratio of new-crop soybeans to corn also moved during the survey period, from about 2.42 to a low of 2.30 on March 16. The ratio finished at 2.35 on March 18 and on Thursday it was back up to 2.39. Values around 2.4 or above start to favor soybean plantings while those near or below 2.3 favor corn.

It is also worth noting that the U.S. stock market took a significant beating within USDA’s survey period, with the S&P 500 plunging 20%. Falling oil demand due to the coronavirus outbreak has led to the full closure of nearly three dozen U.S. ethanol plants, which could take one-fifth of ethanol production capacity offline by the end of the month. Recent volatile moves in both commodity and equity markets could certainly impact U.S. farmers’ actions this spring, but USDA said on Thursday it will relax its loan process to help farmers ease the financial impact of coronavirus. The $2 trillion U.S. coronavirus stimulus bill also includes support for farmers.

POSSIBLE OUTCOMES

There is a chance that some farmers could have altered plans from when they were surveyed, but when considering expectations for Tuesday’s report, it is important to remember that neither USDA nor the farmers have a crystal ball. They do not know what the markets will be like on Tuesday or what next month’s weather will be.

This failure to connect the survey methodology and time frame stung the market very badly a couple times last year, particularly in June. USDA was surveying farmers for acreage in the first half of June when a huge portion of corn acres were still unplanted and corn futures were surging.

Soybean prices had a much more muted reaction, so farmers planned to stuff their fields with corn despite the late date, stunning the market at the end of June with a much larger corn area than expected.

I conducted acreage polls on Twitter earlier this week and the results suggested that in real time, corn intentions could be lower and soybean intentions higher than analyst estimates and potentially, what farmers reported to USDA. That effect was more pronounced for corn than for soybeans. (reut.rs/2ycid8q)

As always, the true acreages are subject to change again at any point over the next couple of months depending largely on weather. The next chance for farmers to report their planted acres to USDA is in early June and the results will be published on June 30.

The June numbers generally represent what has been planted, but in a super-delayed year like 2019, they still may partially represent intentions, and that is a reason why the market missed that number so drastically last year.

In the last 11 years, the average trade guess for soybean acres in March was too low only twice: 2014 and 2017. The soybean-to-corn ratio was favorable to soybeans in both those years, especially in 2017. (reut.rs/2QND5cw)

The results for corn have been more mixed but skewed toward under-guessing, as the trade was too low in six of the last 11 years, including last year. Analysts were too high on corn acres in the previous two years. (reut.rs/3dwQNdx)

Editing by Matthew Lewis

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