USDA Report Worksheet, MFP Update and China
Update for January 9th, 2020
The highly anticipated USDA January reports including the final 2019 crop production numbers for corn and soybeans, the quarterly grain stocks (as of DEC 1) and the monthly WASDE numbers will be published tomorrow.
Average trade estimates call for a reduction in numbers in all U.S crop markets including lower corn and soybean production along with lower quarterly and ending stocks. Ending numbers for South American production are expected to be reduced except for Brazilian soybeans which may see a slight increase.
Specifically, the trade looks for:
-150-million-bushel reduction in U.S. production
-0.5 to -1.0-bushel reduction to the average U.S. corn yield
-400,000 to -500,000 reduction in corn acres
A reduction in total estimated bushels to 13.5 billion vs the previous estimate of 13.661 billion.
World stocks are expected to fall by 300 MMT
South American production is anticipated to remain unchanged until harvest numbers are known.
A reduction of -40 to -60 million bushels based partially on a lower yield
-200,000 less harvested soybean acres
Trade expects U.S. ending stocks to fall by -25 million bushels and a slightly lower global supply.
Source: USDA, Bloomberg
Most analysts seem to feel quite neutral towards tomorrows report. While most anticipate a bullish report there are still many obstacles for prices to overcome-decreased export volume, promising yields expected in South America and U.S. acreage estimates for 2020 which indicate the likelihood of several more million corn and soybean acres. Michael Cordonnier has announced his guesstimates for the 2020 acreage split. He anticipates U.S. producers will plant between 93.5 million and 94.5 million corn acres in 2020 up from 89.9 million acres in 2019. He anticipates a 10 million acre jump in soybean acres in 2020, up from 76.4 million acres in 2019 to 86-87 million acres this year. Tomorrows USDA report, next weeks scheduled signing of the Phase 1 agreement with China and 2020 acreage talk may create a period of time where a lack of fresh, bullish news may cause prices to struggle to move higher regardless of the bullish report and the finalization of Phase 1.
China has been slow to confirm the signing of the Phase 1 agreement but has now announced that Premier Liu He will be traveling to Washington on January 13th for the signing ceremony. China has yet to confirm the specific amounts of U.S. agricultural purchases they have agreed to buy but U.S. officials continue to tell us it will amount to $80 billion over two years. The 86-page Phase 1 text will be released to the public after the signing ceremony. It will include the language related to the enforcement and other details but will not include specific commodity purchase commitments nor the timing of them.
After hearing in December that the final installment of the MFP 2 payments was all but certain in January or early February, we now are told the payment is in doubt. Sources have said that the Trump Administration along with USDA Sonny Perdue have not been pushing for the payment be made and would prefer to see how the Phase 1 deal with China plays out first. It’s likely that farm-state lawmakers and lobbyists from farm group will be working overtime pushing for the payments to be made.
Reuters announced that China has announced the suspension of plans to mandate the E10 Target. The goal was set in 2017 to reach a 10% ethanol blend in the gasoline supply nationwide by 2020. This news is a significant blow to their own domestic producers that had built new plants as well as biofuel exporters in the U.S. and Brazil which were set to benefit from this momentous mandate. In 2016 nearly 20% ($300 million) of the U.S. fuel ethanol was shipped to China. Since then shipments have plummeted to a trickle, this trend was expected to be reversed following the announcement of the Phase 1 agreement.
A significant winter storm system is approaching the Midwest and promises to bring a wide variety of weather to the area Friday evening through Saturday. The exact track of the storm and impacts are still evolving but the most recent map is shown below.