2019 US Corn Acreage, Yield Dilemma and Supply & Demand Analysis

The 2019 US planting season has been one for the history books, with corn planting at the slowest pace on record according to the National Agricultural Statistics Service (NASS), reflecting the excessive wet weather pattern across the US.  It began with an abrupt change to a wetter pattern immediately after the 2018 harvest.   This did not allow fall application of anhydrous ammonia ahead of the 2019 corn crop before winter set in, which is highly unusual.   The wet pattern persisted during the winter months and extended through May. National Oceanic and Atmospheric Administration (NOAA) indicated that Nebraska, Kansas and Missouri experienced the wettest May on record, while Illinois and Iowa were the 4th wettest and South Dakota the 5th wettest.  The following chart shows precipitation as a percent of normal over the past six months, with many areas receiving 130-250% of normal precipitation from December to early June according to NOAA’s High Plains Regional Climate Center data.

As a result of the heavy rains over the central US, all five of the US Great Lakes are near or above record high water levels as of early June. There are no bids or offers for barge freight on the Illinois and mid and upper Mississippi River (effectively closed) though June 19 due to high water, which is very unusual. The cumulative effect of the wet weather pattern, combined with the frequency of rain events simply did not allow topsoil moisture levels to dry enough to allow field work in many areas until LH May-early June. The following chart shows the record slow US corn planting pace and second slowest US soybean planting pace.

With most producers planting in very marginal topsoil moisture conditions “mudding it in”, one of the worst things that could happen at this time would be an abrupt change in the weather pattern, with daily highs in the 80’s and no rain, which would put a crust on the topsoil making corn and soybean emergence very difficult. With almost all corn and soybeans planted into wet soils this year, there will likely be soil compaction issues that limit corn and soybean root development that are a silent “robber” of corn and soybean yield potential.

There has been a lot of discussion regarding the attractiveness of the crop insurance prevented planting option for corn, with estimated breakeven levels of $4.50-5.00 basis December Corn futures based on my analysis. This indicates that December Corn futures would need to rally to these levels to buy corn acreage away from the crop insurance program. We believe that is one reason December Corn futures recently found resistance above $4.50, a level close enough to breakeven that has encouraged some producers to plant (if possible). There are a wide range of ideas on the amount of prevented planting acreage in 2019 extending from 4.0-12.0 million acres as shown in the following chart.

The record slow US corn planting pace and wide range of ideas on prevented planting acreage has resulted in a wide range of estimates for 2019 US planted corn acreage, largely ranging from 83.0 to 90.8 million acres, down 2.0-10.0 million acres from USDA’s estimate of 92.8 million acres. With the recent appreciation in December Corn futures, US producers have turned bullish on corn. They have stopped selling corn and producers in some of the wettest areas in the eastern Corn Belt will plant corn past their final crop insurance planting date (June 5th) to June 15-20 with the following reasons noted:

• New crop corn prices have traded close to levels that will compete with the prevented planting payments for many producers.
• Producers want to plant corn (or any crop) so they do not lose their market facilitation payment (estimated at about $45 per acre).
• Revenue assurance crop insurance policies provide downside yield risk for producers.
• POTENTIAL CROP REVENUE GUARANTEE RESET  Producers are factoring in the possibility that their crop revenue guarantee may be reset higher if the average price of December Corn futures during October is higher than the February price of $4.00 (used to calculate current crop revenue guarantees) .

There are two major schools of thought regarding the negative impact that record late planting will have on 2019 US corn production as follows:

1. US planted corn acreage will be reduced as much as 8.0-10.0 million acres from USDA’s prospective plantings estimate of 92.8 million acres as producers responded to net return analysis indicating they should take the prevented planting option and not plant their corn. This compares to USDA’s expectation for a 3.0 million acre decrease with their planted acreage estimate of 89.8 million acres. A limited amount of acreage planted after the first week in June, combined with very good yield potential of corn planted in May will contribute to a US corn yield of 172.0-174.0 bushels per acre, just under USDA’s initial trend yield estimate of 176.0 bushels per acre and their current estimate of 166.0 bushels per acre.  
2. The sharp rally in December Corn futures into late May above $4.50 changed everything. Many producers are planting for crop insurance, rather than taking the prevented planting payment. US planted corn acreage will only be reduced by about 4.0 million acres, as producers will plant their corn in extremely wet soil moisture conditions knowing their revenue assurance policy will give them downside protection on their corn yield and on the possibility of a potential crop revenue guarantee reset to a higher level. The potential switching of 1.0-2.0 million acres of intended soybean area to corn due to favorable economics will limit the decline in planted corn acreage. The unprecedented 30.6 million acres of corn planted after June 2nd will result in a US corn yield of 165.0-167.0 bushels per acre, in line with USDA’s estimate of 166.0 bushels per acre.

Either scenario results in US corn carryout estimates of 1.400-1.600 billion bushels (versus USDA’s estimate of 1.675 billion bushels), which has rallied December Corn futures to $4.54. The trade will now assess US weather to determine if there will be a bullish combination of the two scenarios, with low planted corn acreage and low yield (which could lower US corn carryout to near 1.000 billion bushels) to rally December Corn futures to $5.00-$6.00.

There will be tremendous uncertainty over US planted corn acreage as the weather pattern during the remainder of June will determine final planted corn acreage. USDA’s June acreage survey, largely conducted during the first two weeks in June, will not likely pick up the magnitude of acreage loss if the wet weather pattern persists. NASS will survey about 100,000 producers, asking how many acres they have planted and the amount to be planted. Most producers in early June still have not changed their intentions regarding planted corn acreage. If excessive wet topsoil moisture conditions do not allow producers to plant corn over the next two weeks, it will be too late to plant corn and the amount of acreage they reported to be planted will be too high.  If USDA decides a special survey is required to more accurately count planted corn acreage (due to late planting), they will announce this upon the release of the June acreage report to be released on June 28 (with the special survey results likely to be released on August 12th). Another accounting of US planted acreage data is from the Farm Service Agency (FSA), who releases monthly acreage certification data from August-January. Every producer that participates in US government programs is required to report (certify) what crop they planted on each of their fields to their county FSA office by July 15. This data gives USDA a very accurate accounting of US planted acreage for each crop.  USDA typically waits for October FSA planted acreage data to make significant adjustments to US planted acreage for corn and soybeans in the October supply/demand report.