Kub's Den

Where I farm (in South Dakota), the soil has remained unusually cold and damp, and unusually late into the season. The lilacs aren't even blooming yet. We're grateful that we don't have the catastrophic flooding or waterlogged soils experienced elsewhere in the country this spring, but still, the soil's progress is slow enough that I don't have anything planted yet, and slow enough that I've definitely re-read the prevented planting clause on my multi-peril crop insurance policy. Believe me, I've done the math to see if the potential payout (55% of actual production history) will cover my already-sunk costs for land, chemicals, etc.

And then -- when I had just about made my reluctant peace with the potential necessity of "farming the mailbox" for an insurance check instead of farming the actual land for actual grain to be sold into an actual market -- up popped a weekend forecast for 3 to 4 inches of rain across eastern Iowa, with similarly unwelcome amounts in the seven-day forecast, stretching from South Dakota to Indiana and from the panhandle of Texas all the way to Michigan's Upper Peninsula (basically the entire Corn Belt).

These regions are already far behind the usually expected planting pace, especially in the second-highest corn-producing state, Illinois, where planting progress is a whopping 71 percentage points behind expectations (11% complete on May 12 versus 82% as a five-year average). If the rain really does fall as forecast over this weekend, there are significant swaths of the countryside that may not be able to support heavy equipment for weeks.

So now it seems possible that if I don't get anything planted, I will be giving up not merely the not-so-thrilling opportunity to sell $3 corn into the actual market, but I will potentially be missing an opportunity to sell $4 corn (or $4.50 or $5.00 corn?) into a market that may be looking at a short crop, with supplies trimmed by outright acreage losses and also by, perhaps, lower yields from late-planted fields with non-ideal growing conditions.

Now I really want to get that corn planted! But how bulled up should I (or anyone) be?

I made an attempt at putting together a spreadsheet that accounts for the original numbers of intended corn acres in each state, compared against all the corn acres already planted by May 12, plus some generous assumptions about how many acres each state may be able to get planted over the ensuing three (wet forecast) weeks before Memorial Day. I also took into account the current wetness of each state's soil (Palmer Drought Index) and how the location of that wetness lines up with where the corn actually gets planted in that state (e.g. northern Minnesota is dry but plants very little corn; southern Minnesota is waterlogged just like the rest of the Corn Belt). And then I calculated the number of acres across the U.S. that may not be planted to corn, and which may therefore be leftover to be switched to a different crop, or fallowed, or planted to a cover crop, consistent with a prevented planting insurance claim.

The results of that spreadsheet -- dozens of millions of acres not yet planted to corn by Memorial Day -- are too apocalyptic to even work with. My assumptions included a guess that every farm operation capable of getting anything planted at all before this weekend's rain is working all day and all night to do so. Furthermore, I made the assumption that it would dry out in enough spots to allow some fieldwork after the storm system passes through. But even that doesn't fully account for the boundless ability of American farmers to plant corn when they're motivated to do so.

Memorial Day isn't necessarily the last day anyone can plant corn in this country. The first date where I, in South Dakota, can file a prevented planting insurance claim is May 25. The first date in Iowa, for instance, is June 1. Yet even after those dates, the insurance policies are set up to encourage late planting of corn (with gradual reductions in coverage) and/or re-planting of damaged corn, if at all possible. And if the market continues to rally and new-crop corn prices continue to increase above $4, the motivation to get some corn in the ground will increase.

It's theoretically possible that there will be a window of dry weather and suitable fieldwork conditions in June. We don't yet have a confident weather forecast far enough out to say all these corn acres will be totally lost. So instead of my spreadsheet's apocalyptic prediction, let's instead spitball a figure of 4 million acres. Straight off the top of the U.S. corn supply-and-demand tables, a loss of 4 million acres would cut 704 million bushels off the 2019 production, taking it to a still-large 14.3 billion-bushel crop and a still-comfortable 12.1 stocks-to-use ratio, all other things being equal. Of course, all other things wouldn't necessarily stay equal. The cuts in 2019 production are likely to come not only from acreage losses but also yield losses as shorter-day, lower-yielding seed varieties are selected, or as the plants suffer from a slow, wet start, or as the hottest part of summer hits the plants at just the wrong reproductive stage. On the other hand, as the price of corn rises, various usage categories would likely respond with subsequent cuts.

A few last notes about the market's response to all this uncertainty: Speculators in the corn futures market have recently been very bearish about the market, holding 2.5 times as many short positions as long positions as of May 7. Therefore, as DTN Lead Analyst Todd Hultman points out, "We are transitioning from a deeply bearish mood with a record amount of noncommercial shorts into a new mood of buying based on the planting threat. It's causing shorts to run for cover. This market is more emotional than just an adjustment in the number of planted acres would indicate."

Emotions will run high, not only at futures-trading desks, but also in the shops, homes and sandbagging stations (and bars) where Midwestern farmers will have to wait out the rain delay. They'll watch the corn they're not getting planted go up in price, and simultaneously the soybeans they don't want to plant -- but will probably have to plant -- go down in price. The market implications of all this prevented planting are hard to predict, but they're not hard to understand.

Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.

(BE/AG)

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