THE AUGUST USDA REPORT WILL SHOW THE EFFECTS OF WEATHER, TRADE

A record 31 million acres of U.S. cropland were left to be planted at the middle of June, following a Central U.S. spring of excessive rainfall and below normal temperatures.

The record number of acres left unplanted produced considerable debate as to the correctness of the National Agricultural Statistics Service (NASS) June Seeding Report. Did farmers plant their intended June acres or were they enrolled in the Prevent Plant program?

The June report is one of the most closely watched crop surveys each year due to what it suggests about the total U.S. supply of corn and soybeans produced that year. Because of the weather uncertainty and late planting of this year’s crop, the USDA is undertaking another survey to provide a more accurate picture of 2019 acreage.

Another Look at Planted Acreage

The August resurvey – the first since 2015 – will produce U.S. corn/soybean planted/harvested acre estimates that will carry forward until the October USDA report when Farm Service Agency (FSA) data is incorporated to arrive at a more concise U.S. crop seeding view.

NASS will also produce the season’s first official yield estimate on summer row crops in August. This will include a broad survey of farmer yield expectations along with satellite data – making this the first August survey that enumerators will NOT head to the fields for counts.  Thus, the ag analytical industry lacks a history as to how best assess the August yield results based on the new satellite imagery.

Trade Payments Effect

The June report itemized more than 325 million planted acres with an estimated 10 million acres that were intended, but were left unplanted. These acres were assumed to be enrolled in the Prevent Plant Program, which paid farmers to leave land lay idle should adverse weather prevent seeding.

Notice the close relationship between the June and final January Seeding reports. Recently, the final estimate has fallen consistently below the June estimate. The last time that final seedings were above the June forecast was during the 2012 drought. That year, farmers certified extra acres to be eligible for government income assistance.  This is important in the view of this year’s Market Facilitation Program (MFP) trade payments of $15-150/acre, which could cause farmers to certify as many seeded acres as possible to be eligible.

The Math Behind Prevent Plant Payments

U.S. Prevent Plant payments were enticing. 2019 PP corn payments were made on a percentage (55 percent) of a farmer’s average yield (APH) times the annual Revenue Insurance price ($4.00) times your purchased revenue insurance level (55-85 percent). Planting dates make a difference for eligibility depending on the Central U.S. location.

Years of record corn/soy yields allowed for high APH’s which likely helped farmers decide to enroll more acres in the PP option.

Illinois and Iowa corn farmers were offered PP payments as much as $270-350/acre which was more profitable than farming on owned acres. If producers paid high land rents, the return was not as enticing.

All of this frames the debate this year in whether farmers enrolled another 3-10 million acres (of the 31 million of row crop acres that were not seeded in mid-June) into PP.  This would suggest that total U.S. PP acres could rise to 15-20 million acres which is hinted via the release of early USDA Risk Management Agency (RMA) crop insurance data.

At Ag Resource, we’ve been using a U.S. corn seeding estimate of 89 million acres, which is down 2.7 million acres from the NASS June final forecast. Soybeans and sorghum are the other crops where additional seeding declines are possible relative to PP enrollment.

Corn Intentions

The table outlines U.S. corn Prevent Plant acres since 2012. Notice that the record PP in corn was set back in 2013 at 3.62 million acres – a wet spring, which was not nearly as dire as 2018. Traders assume that 2019 U.S. corn PP acres will rise to a record 6-9 million acres. Yet, the key is not PP acres, but understanding what farmers intended to plant following the CBOT market stimulus of $1.00/bushel rally in cash corn prices.

In 2013, U.S. farmers enrolled 3.41 million acres in the PP program, but total plant/failed acres rose another 3.6 million acres from August to the final report.

Therefore, NASS waits until the October report in its utilization of FSA data to adjust its August planting estimates for summer row crops. Notice the relationship between FSA Plant/Failed acres to the final NASS estimate. This is the data point to pay attention to following the August NASS report.

How Many Harvested Acres Will There Be?

The average trade estimate for August calls for U.S. corn harvested area of 80 million acres, down 3.6 million with a soybean harvested area of 79.9 million acres, down 400,000 acres from the NASS June forecast. However, the spread between the high and low in U.S. corn harvested area is a massive 5.8 million acres and 5.5 million in soybeans. This reflects the huge variations within the industry as to whether U.S. farmers seeded the vast majority of the remaining 31 million acres or punted and collected PP.

The chart below reflects prior trade estimates of harvested acres and the standard deviation as a percentage of the mean. The point is that since 1994, there has never been this much industry uncertainty surrounding U.S. corn harvest estimate heading into the August NASS report.

There is also a wide spread in corn yield estimates of 6.2 bushels per acre (BPA), and soybean yield estimates of 3 BPA. The combination of yield and harvested acres only further dilutes the confidence of private forecasts relative to the August NASS forecast.

The 2019 crop suffered under delayed planting conditions which is why WASDE has dropped their corn yield estimate by 10 BPA (from trend) to 166 with soybeans off 1.6 BPA to 48. These estimates account for delayed seeding, but not for crop improvement or deterioration thereafter. We could see extreme volatility following the August crop report. It’s all part of the current market conditions as the industry comes to statistical grips with weather-affected supplies.

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