Update for September 16th, 2020
The September USDA Crop Production and WASDE reports were released last Friday morning. Production totals for both corn and soybeans were lowered but fell with the trades pre-report estimates. Some questions have been raised regarding the USDA numbers that may be supporting prices. For instance: the lowering of corn production by -378 million bushels and reducing final yields from 181.8 to 178.5 bushels per acre doesn’t add up when you look at other factors. Like the fact that “harvested” acres in Iowa were lowered by -1 million acres and Nebraska by -350,000 acres. Both Iowa and Nebraska are huge corn producing states which could bring a much larger reduction in U.S. total production which was lowered from 15.278 billion to 14.9 billion bushels.
U.S. ending soybean stocks were significantly reduced from 610 million to 460 million bushels and with demand left unchanged it is quite possible that this could be reduced further in upcoming reports. Harvested acres were left at 83.020 million acres but yield was lowered slightly from 53.3 to 51.9 bushels per acre but many traders expect to see these numbers work themselves even lower as we move through harvest. If ending stocks were to fall below 400 million and demand remains strong we could see much higher prices. The La Niña weather pattern that is continuing to build strength may provide U.S. producers with a “window of opportunity” to price bushels. Some key soybean production regions in Brazil are already dealing with dry conditions, if this persists the stage will be set for a potential weather scare price rally into February which would give U.S. producers an opportunity to make profitable sales.
USDA corn and soybean supply demand estimates for the 2020 growing season are shown below. It’s interesting to see how the numbers have been adjusted over time.
China has had several weather set-backs this season. Three typhoons along with other flooding events have diminished yield potential in many regions lowering their 2020-21 production forecast. Zhang Dalong an analyst with COFCO futures told Reuters, “We think that corn output in the northeastern region would fall 5 MMT to 10 MMT this crop year.” (I have also seen estimates as high as 15 MMT to 20 MMT) Corn prices in the country have climbed sharply to record highs as pictures of damaged and flattened corn have spurred fears about supply shortages. Also remember that China is the world’s second largest consumer of grain, and their stockpiles are greatly diminished. The Chinese are forecasting new crop imports similar to the current USDA 7 MMT estimate, but some are questioning its validity given that there are already 8 MMT of corn export sales to China for 2020-21. The USDA’s Chief Economist has stated that since China has not indicated that there are any plans to increase their import quota the agency is watching for actual shipment data rather than sales.
Three years ago China imported 82.5 million tons of soybeans, last year imports increased to 98 million tons, the USDA has forecast 99 million tons for the 2020-21 crop year. Clearly there are buyers that believe this forecast is too low and believe China will import more than 99 million tons of soybeans this season. Traders are also aware that until the U.S. soybean crop is harvested and Brazil has planted and produced a bumper crop the world soybean surplus has been reduced and there is strong demand requiring big crops from both countries.
It’s official! The EPA announced Monday that it is denying 68 petitions for small refinery exemptions (SRE’s) for the past compliance years of 2011-2018. Refiners had sought approval to bypass their obligations under the Renewable Fuels Standard (RFS) but the decision by the EPA which had been requested by President Trump, denies most of the pending requests. The EPA noted in their decision that “it seems unlikely that Congress contemplated or intended to allow a small refinery to obtain hardship relief through submitting a petition in calendar year 2020 for RFS compliance year 2011, for example.” (Feedstuffs)
A few months ago Debbie Stabenow of Michigan, a ranking member of the Senate Ag Committee called for an investigation of the distribution of MFP funds by the nonpartisan U.S. Government Accountability Office (GAO). Brownfield Ag reports that the final report from the GAO does in fact confirm the suspicions of the Ag Committee. The GAO found that there were major regional inequities which favored cotton growers. Cotton producers received payment 3 times the amount as others and large farms benefited over small and beginning farms.
Brian D. Healy, director of global ethanol market development for the U.S. Grains Council told Reuters Tuesday that global ethanol production is forecast to remain -20% lower this year. He also noted that a full recovery to pre-pandemic levels will likely take until 2022.
The La Niña weather pattern that has been watched now for several weeks is strengthening and is cooling sea surface temperature in the central and eastern Pacific Ocean near the equator. While those changes seem quite specific and isolated they will affect weather patterns around the globe.
We’re already seeing an increase in hurricane activity this year in the Atlantic Basin which is not unusual during a La Niña event. As we move into winter the polar jet stream which moves weather patterns in the Northern Hemisphere will tend to take a more northern track. Which means northern regions of the country could see above normal precipitation and below normal temps while areas south of the jet stream generally see warm and dry conditions. Of course these are generalities so keep in mind that no two La Niña events are ever exactly alike.
The latest 6 to 10 day outlooks are shown below.
The extended 8 to 14 day outlook shows the dry and warm conditions are expected to continue for much of the country.