Melvin Brees
Farm Management Specialist
University of Missouri Extension




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March 31, 2000

Acreage or Production?

For several weeks, market analysts have anticipated today's (3-31-00) USDA Planting Intentions Report looking for production clues. USDA reports 2000 corn planting intentions at 77.88 million acres, up less than 1% over 1999. Soybean plantings are expected to be up over 1% from last year at 74.87 million acres. These acreage projections are slightly above pre-report average estimates, but within expected ranges. If the soybean estimate holds up, it will be the largest soybean acreage ever.

The USDA Quarterly Grain Stocks, also released today, didn't have any surprises either. Both corn and soybean were within expected ranges, down somewhat from last year but above two years ago. Ending stocks probably won't grow, but they will be plentiful.

What really happens depends upon the weather. While analysts have anticipated today's reports, the reports didn't have much in the way of new information. As expected, planted acreage will be large and demand is solid. The large acreage translates into big supplies and low prices if the weather and yields are good. If weather and yields are poor, use will tighten supplies and send prices higher. This situation has created volatile markets. Just this past week, the range in new crop (Dec.) corn futures has been about twelve cents (as of mid-morning, Friday). New crop (Nov.) soybeans have varied nearly twenty-five cents. This weather market volatility is occurring before the crops are even planted!

There is a lot of both production and marketing risk in this situation. It will be very risky to wait until production prospects are better known to make sales. It is also nearly impossible to anticipate where (or when) the markets will peak, making early sales difficult. For those willing to use a variety of marketing tools (options, minimum price contracts, etc.) some of these risks can be managed. For those uncomfortable with these tools, spreading out sales of quantities based on "worst case" production might help manage the risks. Whichever approach to sales is taken, it is important to remember that trying to get the highest price is an impossible goal that depends almost entirely on pure luck!

Today's USDA reports really didn't provide us with much decision making help. The intended acreage wasn't a surprise. It's production that is uncertain. Not only does this mean production risk, it also means significant price risk. It's not an easy situation to manage and the results can sometimes be disappointing, but strategies to manage some of these risks are essential. --Melvin

-- Melvin

University of Missouri ExtensionDecisive Marketing - March 31, 2000 -- Revised: April 20, 2004