Corn Acreage and Stocks | an interview with Todd Hubbs

by Todd Hubbs, University of Illinois
link to farmdocDaily post

Corn futures prices rallied about $0.90 per bushel since the beginning of May. The rally reflects expectations that planted acreage will fall well short of March intentions and on yield concerns associated with wide-ranging late planting. Demand weakness continues to emerge in the export market, but supply issues look to overwhelm any decrease in demand. The release of USDA’s Grain Stocks and Acreage reports on June 28 looks to set the tone for summer corn prices.

The end of the month USDA Grain Stocks and Acreage reports are less than two weeks away. Todd Gleason talks with University of Illinois ag economist and commodity marketing specialist about the projected numbers and how farmers should set this self up for marketing this year’s corn and soybean crops.

The reduction in corn planted acreage by three million acres and corn yield by 10 bushels per acre in the June WASDE appears to be a harbinger of things to come this year. The June estimate of planted acreage of corn is generally expected to be far less than intentions of 92.8 million acres reported in March. The only question remaining is the scale of acreage loss. The magnitude of prevented planting acres this year looks to eclipse the previous record of 3.6 million acres in 2013 by a wide margin. As of June 9, 14.5 million acres remained unplanted in the 18 states reported in the Crop Progress report. The amount of prevented planted acreage in those estimates remains uncertain, but the prospect of planting more than 14 million acres of corn after June 10 seems daunting.

Additionally, some acreage may have been switched to soybeans due to delayed corn planting over large areas of the Corn Belt. Recent wet weather brings soybean acreage planting into question as well. However, the prospect of a new round of Market Facilitation Payments provides a strong incentive to plant soybeans in the second half of June if weather permits. The June acreage estimate will probably not be changed until FSA certified acreage data becomes available in October. The final acreage estimate released in January tends to be less than the June estimate. Since 1996, the final estimate averaged 626 thousand acres less than the June acreage report in years when prevented planting acreage exceeded one million acres. This year may see a substantial drop from the June acreage estimate due to the uncertainty about planting during the survey period.

While the supply situation looks increasingly supportive of corn prices, current levels of corn use show weakness; particularly in the export market. The estimate of June 1corn stocks will reflect the recent decrease in consumption and reveal the pace of feed and residual use during the third quarter of the marketing year. The expected size of June 1 stocks can be calculated based on consumption data that are currently available and on the assumption that feed and residual use is on pace with the USDA projection of 5.3 billion bushels for the year. Based on the USDA’s Grain Crushings and Co-Products Production reports for March and April and on the EIA weekly estimates of ethanol production during May, corn used for ethanol production during the third quarter of the marketing year is estimated at 1.347 billion bushels. Corn used for other domestic industrial products is estimated at 362 million bushels.

Cumulative export inspections during the first three quarters of the marketing year totaled 1.549 billion bushels. Through April, Census export estimates exceeded export inspections by 149 million bushels. If that margin continued through May, exports during the first three quarters of the year totaled 1.698 billion bushels and indicated exports during the third quarter at 566 million bushels.

For the marketing year, the USDA projects feed and residual use of corn at 5.3 billion bushels. Feed and residual use during the first half of the year totaled 3.487 billion bushels. Use during the last half of the year needs to equal 1.813 billion bushels for total use to reach the USDA projection. Third and fourth quarter feed and residual use vary substantially over time. Feed and residual use near 954 million bushels during the third quarter this year sits close to the center of the range based on the historical data. With March 1 stocks of 8.605 billion bushels and imports during the quarter of 8 million bushels, the estimates of consumption during the quarter point to June 1 stocks of 5.384 billion bushels, 79 million larger than stocks of a year ago. A deviation from June 1 stocks less than 100 million bushels from the current estimate will not engender much price movement. The Acreage report on June 28 should overwhelm any information in the stocks report.

Uncertainty about corn acreage looks to remain in place through the summer. Weakening demand should not be a hindrance to a continued price rally since the supply situation is quite dismal. Strengthening corn basis and futures prices point to marketing strategies involving delayed pricing of the new crop. Price objectives need to be set to take advantage of current corn market dynamics. Managing crop price risk can be accomplished with a variety of marketing strategies. It is essential to have a marketing strategy since supply shocks provide a limited time frame to take advantage of pricing opportunities. The strategy probably should include plans for pricing some of the 2020 crop.

Corn Yield Implications of Late Planting

University of Illinois Extension Agronomist Emerson Nafziger discusses the impact of late corn planting and how farmers should set about nitrogen applications this spring. He was interviewed May 1, 2019 by Todd Gleason.

The following summary is taken from a May 1, 2019 University of Illinois farmdocDaily article written by agricultural economists Scott Irwin and Todd Hubbs.

“The impact of late planting on projections of the U.S. average corn yield is an important question right now due to the very wet conditions so far this spring through much of the Corn Belt. We estimate that the relationship of late planting with corn yield trend deviations is highly non-linear, with a largely flat segment up to 10 percent above average late planting and then a steeply sloped segment for late planting that is 10 percent or more above average. This nicely matches the curvature of planting date effects on corn yield estimated in agronomic field trials (e.g., farmdoc daily, May 20, 2015; Nafziger, 2017). The key then for 2019 is whether late corn planting will be 10 percent or more above average, where the negative impact on corn yield is relatively large. Specifically, when late planting is 10 percent or more above average the chance of corn yield being below trend is 83 percent and the average deviation from trend yield is –6.1 bushels per acre. We analyze topsoil surplus moisture patterns in analog years to 2019 and the analysis suggests late planting this year is likely to be at least 10 percent. The implication is that there is a significantly elevated probability of a below-trend corn yield in 2019 and that present projections of U.S. average corn yield should likely be reduced to 170 bushels per acre or less. It is important to recognize that good summer weather conditions can offset the projected negative impact of late planting on the national average corn yield, but history indicates the probability of this happening is not very high if wet conditions in the Corn Belt persist through mid-May.” - Irwin and Hubbs, University of Illinois

Crop Insurance Loss Ratios in 2018

Gary Schnitkey from the University of Illinois discusses crop insurance loss ratios for 2018, the current outlook for payments in 2019, and the strategic economic models he’ll be developing for soybeans.

by Gary Schnitkey, University of Illinois
link to farmdocDaily article

Most 2018 payments on Federal crop insurance products have now been entered into the Risk Management Agency’s (RMA’s) record system and losses for 2018 can be stated accurately. Similar to 2016 and 2017, low losses again occurred in 2018. Losses were particularly low in Illinois and, more generally, the eastern Corn Belt.

Background on Loss Ratios

This article presents loss ratios, which equal payments on crop insurance policies divided by total premium paid on crop insurance policies. A loss ratio of 1.0 means that crop insurance payments are equal to total premium. Ratios above 1.0 indicate that payments exceed premium, which occurs with some regularity. On the other hand, loss ratios below 1.0 indicate that payments are less than premium. Given the way RMA sets premiums, loss ratios should average slightly below 1.0 over time. Given the high correlation of losses across policies in a year, variability in aggregate loss ratios will occur from year to year.

Data reported in this article come from the Summary of Business which is available from the RMA website. Data were downloaded in late April of 2019. Some changes to loss ratios will occur over time as more loss data become available. However, 2018 loss performance will not materially vary from loss ratios presented here.

Loss Ratios in 2018

For all insurance products, the 2018 loss ratio was .69, indicating that crop insurance payments were less than total premium. Overall, 2018 was a low loss year, continuing a string of low loss years that have occurred since 2013 (see Figure 1). Loss ratios exceeded 1.0 in the drought year of 2012 when the overall loss ratio was 1.57. Payments also exceeded premium in 2013 when the loss ratio was 1.03. Since 2013, loss ratios have been below 1.0 in each year: .91 in 2014, .65 in 2015, .42 in 2016, .54 in 2017, and .69 in 2018. These low loss years correspond to relatively high yielding years in corn and soybeans (farmdoc daily, April 16, 2019).



The overall loss ratio is highly influenced by the performance of corn and soybeans, as these two crops account for 56% of total premium. In 2018, corn policies had 32% of total premium while soybeans had 23%. In 2018, loss ratios were .43 on corn and .56 on soybeans. Since 2014, both crops have had low loss ratios. Corn loss ratios were .46 in 2015, .27 in 2016, .37 in 2017, and .43 in 2018. Soybean loss ratios were .55 in 2015, .21 in 2016, .30 in 2017, and .56 in 2018.
2018 Loss Ratios by County

Many counties in the Corn Belt had very low loss ratios, as would be expected given that corn and soybeans have very low loss ratios. Figure 2 shows loss ratios by county for all policies in that county. Loss ratios below .4 predominated in a stretch of counties beginning in eastern Iowa, going through Illinois, Indiana, and ending in Ohio. Low loss ratios also were in western Corn Belt counties including Minnesota, North Dakota, South Dakota, and Nebraska. In contrast, there was a concentration of counties along the Iowa-Minnesota border that had higher loss ratios above 1.0.



Other sections of the country had higher loss ratios. Loss ratios above 1.2 predominated in North and South Carolina, Georgia, Florida, northwest Missouri and eastern Kansa, and western Texas.
Summary

Overall, loss ratios were low in 2018, continuing a string of years since 2014 that have had low loss ratios. Low loss ratios occurred primarily because of low losses on corn and soybean policies in the Corn Belt.

It Still Takes Two Weeks to Plant the American Corn Crop

Most people take for granted that the farmers can plant their crops way faster today than ever before. While it is true today’s equipment can plant a single acre of corn much faster, it still takes about the same amount of time to plant the whole crop.



It’s an illusion and pretty simple math says University of Illinois Agricultural Economist Scott Irwin, "This is a situation where your eyes can deceive you. So, you drive out in the countryside and you have a friend that is a farmer. They have a big planter and can plant their individual farm, in these particular cases, clearly much faster than they used to (be able to plant them). I don’t disagree with that individual anecdotal observation. The problem is that this doesn’t necessarily add up to the whole."



Sure, the equipment can get over a single acre way faster but each piece of equipment is going over way more acres than used to be the case. Consequently, it takes about the same time to plant the whole U.S. corn crop today as it did forty-years ago says Irwin, "It is a near constant, there is some variation from year to year, but on average it looks like it takes a minimum of 14 good field days to get the U.S. corn belt planted with basically everyone able to, and willing to, run flat-out."

In 1980, for instance, Illinois farmers were able to plant about one-million acres per day. Last year, running flat-out that figure was approximately the same.