USDA Makes Few Changes in Acreage Update


On Friday, the USDA released its updated view on estimated planted and harvested grain acreage for the current U.S. growing season. Analysts continue to expect mediumterm crop prices to suffer due to rebounding supply, and today’s report further indicates that 2013 could be the year to replenish the country’s corn and soybean stocks.

Overall, there were few changes to the USDA’s prior (March) forecast, indicating the wet and cool Spring weather delayed, rather than prevented, most planned farm acreage. That said, as we’ve previously noted, the weather conditions over the coming summer months will drive the eventual yield more than the spring planting season.

For instance, farmers earlier this week reported that about 94% of the corn crop was listed in fair, good, or excellent condition (the other categories being very poor and poor), but this rate is common early in the growing season, as shown by a tightly bound multiyear average in the low-90s. It’s not until July and onward measurements of the crop that we see the wide range of weather-induced conditions–all the way from only 66% rated in the upper three categories last year to figures remaining near the 90%-plus range in 2009 and 2004. Importantly, planting dates seem to correlate only slightly with eventual conditions. In 2009, for instance, farmers faced late planting similar to this year, whereas 2012’s planting season was originally known for being among the earliest on record.

Our overarching point is this: weather is inherently unpredictable, but we believe grain farmers worldwide are incentivized to plant as much as possible so long as prices are above their costs. We estimate prevailing corn, soybean, and wheat prices are still well higher than marginal cost, and while the planting and harvesting process will benefit machinery OEMs, the resulting oversupply and fall in crop prices, cash receipts, and farm income will create a more difficult follow-on selling season. As such, we recommend larger margins of safety than current levels before investing in these names.


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