Mecardo Analysis - The rain doesn’t stop corn planting?
- By: "Farm Tender" News
- Cattle News
- Jul 02, 2019
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By Andrew Whitelaw | Source: CME, USDA
In recent weeks the major discussion point in the grain market has been the difficulty in planting the US corn crop due to the torrent of rainfall. However, the market has suddenly lost steam over recent days. What is happening?
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I have been asked a few times in recent weeks why the focus is on corn. Figure 1 shows the relationship between the commodities. This represents the returns or the weekly price change in percentage for both grains. As we can see there is a high degree of correlation between them, which effectively means that it one goes up the other will follow (and vice versa).
That outlines the importance of changes in corn supply and demand to wheat pricing. So why has the market suddenly fallen?
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The USDA released their acreage report. This report provides an insight into the planted areas for each of the main commodities grown in the US. The biggest surprised however was that after all the reports of drenched paddocks and flooded rivers, that corn was suddenly 3% higher year on year (Table 1).
The reason why is that the survey conducted for the acreage report was conducted in early June, at the mid-point of the monsoonal conditions. The survey also included in this figure the intended acreage, which is now unlikely to have been achieved.
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The USDA have realized that the data is likely to require revision and are going to resurvey which will lead to updated figures for the crop report released in August.
Key points
* Corn and wheat follow one another with a strong degree of correlation
* The acreage report shows an increase year on year to the area planted to corn
* This data is liable for major downward revisions
What does this mean?
The algorithms which trade on data are likely to be a large factor resulting in the fall in futures prices. Although on paper acreage has been increased, it is highly likely that this data is erroneous and will be updated.
We may just be seeing a breather and when updated data is released there is the possibility of a rebound.
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