Update for May 15th, 2020
Data released in the May USDA reports revealed a much tighter supply of old crop corn. The outlook for new crop corn ending stocks was estimated at a massive 3.318 billion bushels, a level not seen since 1987/88. Projections for new crop demand show an increase of +245 million bushels for food, seed and industrial uses.
Corn for ethanol production was increased +250 million bushels from the current reduced levels based on expectations U.S. gasoline usage will return to near normal levels.
2020-21 corn exports are expected to increase by +375 million bushels
Feed and residual are forecast to grow based on the expectation of a large crop in 2020 and lower prices.
Farm price projection is down -$0.40 from last year and is now at its lowest since 2006/07.
Chinese demand for U.S. corn is expected to be strong with an export forecast of 7.0 million tons.
May USDA soybean estimates came in higher than the trade had anticipated at 580 million bushels due in part to a reduction in exports of -100 million bushels but new crop balance sheets showed a tighter supply than the trade had expected.
New crop soybean production is projected at 4.125 billion bushels. This is an increase of +568 million from a year ago and are based on an increase in harvested acres and trend line yields.
Exports are expected to increase by +375 million bushels due in part to the Phase 1 trade agreement.
The season average farm price is -$0.30 lower than last year at $8.20 per bushel.
The weekly Crop Progress report shows that both corn and soybean planting is running ahead of normal. Freezing temperatures across a large section of the northern Corn Belt caused some concern but damage was limited due to the fact that most of the soybean crop has not emerged and the growing points for the corn were still underground. U.S. corn planting is now 67% complete, a 16% increase from a week ago. Soybean planting has progressed by 15% from last week to 38% completed.
IEG Vantage (aka Informa) has estimated corn acres at just over 94 million, this is well below the current USDA estimate but still a very reasonable guess. If the IEG estimate is accurate, the reduction in acres alone would trim -450 to -500 million bushels dependent upon what figure is used for “trend-line” yield and the final harvested acres. Still not enough to lower ending stock numbers below 3.0 billion bushels which is not conducive to higher prices. Commodity markets right now are mostly being driven by 2 things- the weather and what’s happening in Washington. Everyone is questioning what the Chinese plan to do and when, and will they end up purchasing more U.S. corn than the skeptics expect. One possible weather concern that has not yet caught the attention of the trade is the increasing amount of key growing areas that are experiencing some level of drought conditions. A drought map was released yesterday and is shown below. The smaller maps at the bottom give a comparison of drought conditions from May, 2019 and current levels now in May, 2020.
Everyone is waiting for details on the new aid package for agriculture, known as CFAP or Coronavirus Food Assistance Program. The department is not able to provide the details of the program yet because the rule which was sent to the White House Office of Budget and Management on May 5th, has not been approved and is still pending review. Because of this there still is no actual sign up date for the program but FSA offices received notification that their training for enrollment will begin next week.
There are a lot of conflicting reports regarding whether or not China will honor all of their Phase 1 promises. Zhang Hua, vice general manager of China’s COFCO International said during an online industry conference, “China will still implement the trade deal and chances are high that China will speed up purchases”. He warned though that U.S. soybeans may not be as economical of a choice as Brazilian soybeans in the months ahead and China has said from the beginning of the agreement that their purchases will be market driven. Hua currently looks for soybean imports of 63.73MMT from Brazil and 13.70 MMT from the U.S. in 2019-20. Another individual that spoke during the online conference, Li Qiang, chief analyst with China’s top agriculture consultancy told others that, “The purchases would be made based on market conditions and commercial considerations.” This statement corresponds well with reports that China plans to use Phase 1 purchases to build up state reserves and expand the usage of the low tariff rates. Global grains trader ADM Co. is remaining optimistic that China will meet the Phase 1 agriculture purchase agreement even considering the slow pace of buying we’ve seen so far and President Trump’s criticism of China. Lower commodity prices will likely limit the value of first year U.S. ag purchases but Jaun Luciano ADM CEO reminded the others during the virtual BMO Capital Markets Global Farm to Market Conference that this is, “a two year agreement” He pointed out that so far China had been following through on all of their commitments to remove non-trade barriers and have worked to improve the ability of both countries to trade. Luciano added that Chinese imports of our American ag products and related goods reached $913 million in February and $952 million in March, the lowest totals for these months in 13 years. But when you look at their import data for the remainder of the year they have around 25% of their August soybean needs met so far and 22% - 25% of the February 2021 needs. But during the peak export season for U.S. soybeans which runs from September through January they are “completely open”. Market bears are doing their best to ignore any positive Chinese trade data. Data indicates that demand from China is growing and is expected to continue. Yesterday the big news for soybeans was a sale soybean oil to China, the largest purchase in almost a decade, yet this news was treated as no big deal.
In other U.S. trade news…we have been hearing the U.K. is preparing a “big concession package” for U.S. agricultural goods in an effort to speed along negotiations. The U.S. and U.K. began formal negotiation on a Free Trade Agreement last week. Both sides have agreed to work quickly towards a deal that will hopefully reduce the strain from the COVID-19 pandemic that is affecting both countries. According to Census Bureau data the U.K. is our seventh largest trading partner.
A plea for “direct assistance” in the next economic rescue package from biofuel producers to U.S. lawmakers has been made and heard. Over 130 ethanol plants have been partly or completely idled over the past several months but still ethanol producers were left out of USDA’s agriculture aid program. Sonny Perdue’s response to the dire situation was that there was just not enough money to go around. Since the exclusion from the initial round of aid, members from the biofuels industry and farm-state lawmakers have turned their hope and attention to the next round of stimulus legislation. (Politico) The latest legislation known as the Phase 4/CARES 2 is expected to be voted on today in the U.S. House. Within this package is a “Renewable Fuel Reimbursement Program” that will provide payments to U.S. biofuel producers that were in production in 2019 and have suffered market losses resulting from the COVID-19 pandemic. Payments to the individual ethanol plants will be based on the numbers of gallons they produced from January 1, 2020 through May 1, 2020 and paid at a rate of $0.45 per gallon. For plants that were not in production for one or more of the eligible months, payment rates will remain the same but will be calculated based on 50% of the total gallons produced during the same time period in 2019. Funding for this program is not capped but instead is worded as “such sums as necessary” from funds out of the U.S. Treasury. This payment program is very similar to the Volumetric Ethanol Excise Tax Credit that expired at the end of 2011.
Some of the other relief measures included in the $3 trillion Phase 4/CARES 2:
An additional $16.5 billion for direct farm payments.
A 15% increase in SNAP/food stamp benefits.
Aid for dairy producers.
Another round of direct checks to Americans in addition to the $1,200 approved in March. Again it calls for $1,200 for single filers and $2,400 for couples but this time dependents would receive $1,200 each up to a total of 3. In the last round dependents were paid $500 each and had to be under 17 years old. Now dependents over the age of 17 would be included which would help those with parents or college-age children living with them.
National Economic Advisor Larry Kudlow has said that we will have to wait and see what final negotiations will yield for this proposed aid package. “We’ve kind of paused as far as formal negotiations go. Let’s have a look at what the latest round produces. You need a month or so to evaluate that.” He also stated that the Trump administration is in constant contact with members of Congress from both parties and that funding agriculture programs is a priority and will be a large part of the coming aid package which will likely include a significant increase in the USDA’s Commodity Credit Corporation’s borrowing limit.
The long-range outlook for the Corn Belt shows we can expect to finally see some warmer temperatures. Rainfall is expected to range from normal to above-normal except for dry areas in the southwest.