Next Friday USDA will unveil its first 2008/09 supply and demand projections in the May WASDE Report. Allendale posed the question, could USDA adjust acres planted/harvested and or yield for corn given the less than stellar planting pace? Allendale's research compared the May estimates versus the USDA March Prospective Planting estimates with regards to acreage adjustment and concludes; do not anticipate any notable acreage adjustment. However, what USDA has done in the past is adjust yield based on planting performance for the May WASDE compared to its Outlook Forum estimates (typically held in late Feb/Early March).
Dating back to 1998, there have been 6 of 10 years when USDA has made a 1 bu/acre or larger adjustment to yield from the Forum to the May WASDE. The minimum adjustment higher has been 1.1 bu per acre as in 2001 and a maximum adjustment higher of 2.8 bu per acre in 2004. Since 1998, there has been one time when USDA lowered the corn yield from the Forum to May WASDE and it was a very notable 2.5 bu/acre reduction, in 2007. Of the six years, only one was reduced, but of equal interest is of the most recent four May WASDE reports, each year, USDA has made reference to adjusting yield based on the pace of planting. Allendale suggests that USDA is likely to continue its adjusting ways next Friday. In the 2008 February Outlook Forum USDA estimated yield at 154.9 bu per acre. Most likely yield could be adjusted lower by more than last years 2.5 bpa in 2007 when the planting pace was running 13% behind as of May 4th. Allendale estimates the May 4th, 2008 planting pace to be a minimum of 25% behind the five-year average. The question, would USDA be so bold to reduce yield per acre by an epic 5 bu? Allendale would be shocked if USDA were to make such a bold move. Allendale's research suggests the trade could have a bullish reaction to a reduce yield in May 9th's WASDE report, but foresees USDA not only adjusting overall 2008/09 corn production lower, but most likely adjusting demand (feed, ethanol and export) lower allowing for a notable reduction in projected ending stocks versus 2007/08 levels. The USDA 2008 Outlook Forum projected ending stocks at a level of 1.243 billion bu and a $4.60/bu season average farm price. This compares to Allendale's estimate of 482 million bushels and a $6 SAFP based on average weather. Based on the poor rate of plantings in 2008, Allendale estimates ending stocks could find reason to be as small as 211 million bushels and compares to 426 million bushels in 1995. Ironically 1995 also had a unique slow planting pace, but ultimately its crop was decimated by a mid summer drought.
Conclusion: Allendale's research suggests to look for USDA to lower its yield estimate, not planted acreage in the May 9th WASDE. Even though Allendale's supply demand projections are able to support a 62% or greater reduction in 2008/09 ending stocks versus 2007/08, we doubt USDA to be as sympathetic. How much of a yield reduction and just how tight do YOU think USDA will project on May 9th? Allendale continues to remain bullish 2008 old and new crop corn futures and cash markets.
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