This morning, USDA released its annual June acreage report and raised its planted acres forecast for both corn and soybeans. The updated projections call for corn-planted acreage in 2009 to be 87 million acres vs. market expectations of 84.2 million acres, and soybean-planted acreage to be 77.5 million acres vs. market expectations of 78.3 million acres.
"Total planted acres for the top three crops — corn, soybean and wheat — are now expected to be roughly flat in 2009-10. Given the likely negative impact on corn and soybean prices, we view today's report as slightly negative for ag equipment manufacturers," Ann Duignan, analyst for JP Morgan, said in a note to investors.
In its March prospective plantings report, USDA projected corn acres to come in at 85 million. "The upward revision from the June WASDE report largely reflects the rapid planting progress in the wake of recent drier weather after the moist weather caused delays earlier in May," says Duignan.
"Harvested acreage is now expected to be 92% of planted acres (vs. 91.5% a year ago). Based on today's acreage report, and assuming no change in yield from the June WASDE report, we estimate that 2009-10 ending stocks-to-use to be 1.4 billion bushels. Stocks-to-use ratio of 11.6% is significantly above the psychologically important 1.0 billion bushel level, and the June WASDE report estimate of 1.1 billion bushels. This, in our view, is likely bearish for corn futures," says the JP Morgan analyst.
Soybean-planted acreage rose to 77.5 million acres from the 76 million acres in March prospective plantings report, but are slightly below market expectation of 78.31 million acres.
"Assuming no change in yield from the June WASDE report, today's acreage estimate results in an ending inventory of 276 million bushels vs. 210 million from the June WASDE. Based on today's report, stocks-to-use estimate now stands at 8.9% (vs. 6.8% a year ago)," says Duignan.
"Using the same crop prices from the June WASDE report, our model suggests cash receipts from major crops will be $102.5 billion in 2009-10, down 1% year-over-year vs. our prior expectation of $100 billion. However, our cash receipts forecast has downside risk as prices are likely to be under pressure from here. We view today's report as negative for the ag machinery space, given the weak outlook for corn and soybean prices."