Market Prices and a Drier Outlook
Updated: Mar 13, 2019
Update for March 12th, 2019
Last Friday the USDA released the March Supply and Demand report which didn’t show large changes from a month ago but significant enough to move markets lower to prices not seen for some time. Probably the biggest surprise was the 100 million bushel increase in U.S. corn ending stocks from last months numbers. The increase was a result of a 75 million bushel reduction made to export figures and a 25 million bushel decrease in corn used for ethanol production. (This is a very significant shift as indicated in ethanol export data for 2018 released by the USDA’s Foreign Ag Service last week. Data showed that ethanol exports increased by 23% from 2017 to 2018. In addition DDG’s also saw an increase in exports over the previous year. U.S. ethanol was exported to more than 80 different countries last year with the largest demand coming from Brazil, Canada and India.) Demand for U.S. corn has been struggling for several weeks and this report made the adjustments necessary (but unwanted) to account for the increased competition now seen from our global competitors. The season-average corn price was lowered by $0.05 to a midpoint of $3.55 per bushel. Soybean demand was raised due to a small adjustment made to the U.S. domestic crush estimate, increasing demand by +10 million bushels. Ending stocks were lowered to 900 million bushels, a -10 million bushels change from a month ago. U.S. soybean exports were left unchanged from the February report.
U.S. Ending Stocks 2018/19 (in billion bushels)
March Est. Trade Avg. Range USDA
Corn: 1.835 1.736 1.680 - 1.795 1.735
Soybeans: 0.900 0.902 0.860 - 0.940 0.910
Wheat: 1.055 1.020 1.010 - 1.050 1.010
World Ending Stocks 2018/19 (in million metric tons)
March Est. Trade Avg. Range USDA
Corn: 308.5 309.06 306.30 - 312.00 309.78
Soybeans: 107.2 106.33 104.40 - 113.57 106.72
Wheat: 270.5 267.47 266.00 - 269.00 267.53
South American Production (in million metric tons)
March Est. Trade Avg. Range USDA
Argentina Corn: 46.0 45.92 44.00 - 47.00 46.00
Argentina Soybeans: 55.0 55.23 56.70 - 54.00 55.00
Brazil Corn: 94.5 94.66 93.00 - 96.00 94.50
Brazil Soybeans: 116.5 115.73 115.00 - 118.50 117.00
Over the past two weeks corn prices have fallen nearly $0.20 per bushel. The MAY19 contract posted new lows and the JUL19 corn contract is close to new contract lows below $3.70 per bushel. New-crop DEC19 prices are also nearing contract lows that were posted back in September at $3.83. Factors currently driving corn prices:
South America is going to harvest a much larger crop than a year ago.
Ukraine corn production looks stronger.
Strength of the U.S. Dollar is making exports out of U.S. much less attractive than other sources.
Rumors of additional U.S. corn acres in 2019.
Planting season weather worries are lessening as the 6 to 10 and 8 to 14 day forecasts are beginning to a show drier forecast which the trade believes, will bring just the right mix for optimum planting conditions.
Since April, 2018 soybean sales and shipments to the EU have been on the rise. Buyers from the EU have turned to U.S. soybeans because they are the most economical and readily available on the market due to high prices for soybeans out of Brazilian, tight supplies in Argentina and drought issues in Uruguay. As of last month, U.S. soybean export sales to the EU had nearly doubled to 9.0 million metric tons during the same period that ended in February, 2018. The last time U.S. soybean exports to the EU reached this level was in 1995. If the strong weekly exports to the EU continue we could near 10 million metric tons during this current 12 month period, this increase would set a 30 year high.
American farmers need a reprieve from the cycle of unprofitable margins we have been in for multiple years. The USDA estimates that farm debt will reach $426.7 billion this year which would be the highest total since 1982. The debt to asset ratio is expected to increase in 2019 but will remain low in relation to historic levels. The risk of insolvency has now reached its highest level since 2009 but is nowhere close to the debt to asset ratio levels seen during the 1980’s farm crisis. The farm sector needs a trade agreement with China sooner vs later to help stabilize prices.
U.S. Secretary of State Mike Pompeo told a standing-room-only crowd in Iowa last week that U.S. negotiators are very aware of the magnitude of importance an end to the trade dispute with China is to U.S. producers. He explained that negotiators are still working through a few obstacles, one of them is ensuring terms of the deal are enforceable, “It is one thing to get an agreement, to write something down and shake hands. It’s another thing to make sure you can enforce that agreement if the other side doesn’t honor it. We’ve seen that before where the Chinese have made promises; they’ve made commitments but have walked away from them. We’re very focused on making sure that if that happens again, there’s a way to enforce those rules.” Pompeo’s message seemed to express more confidence than recent reports that a deal between the countries is imminent. Unfortunately the planned trade summit between President Trump and Xi is being pushed back from the end of March into an undisclosed date hopefully sometime in April.
Bloomberg reports that China has purchased 2 million metric tons of U.S. soybean oilseed while Reuters is reporting Chinese buyers have purchased at least 500,000 MT of U.S. soybeans, as well as at least 8 bulk cargoes. A third source says that China has purchased at least 15 cargoes with delivery most likely to occur between June and September. In addition Reuters reports that China has made a 65,000 MMT purchase of U.S. sorghum, China’s largest purchase since last summer.
2019 planting season will begin with virtually 0% drought and adequate soil moisture in all major corn and soybean planting regions across the U.S.
The updated 6 to 10 and 8 to 14 day outlooks show below normal precipitation for much of the country but the amount of soil moisture already present could cause delays in planting this year. The first of the three maps below is the Surface Soil Moisture Indicator which receives its data from NASA’s GRACE satellite. This map is produced by specifically measuring the top 2 centimeters of the soil and uses sophisticated satellite data to produce this map showing varying shades of blue which show current wetness values above-normal and warm shades to show varying levels of drier-normal soil conditions. As you can see from the GRACE map we are quite wet heading into spring across a large portion of the U.S. The two maps that follow are the latest weather outlooks.