Weather vs Demand Driven Markets and Discover What Green Energy Means for Agriculture
Update for October 29th, 2020
Export sales for U.S. crops have shot up over the past couple of months and prices have followed. Our grain markets have entered into a demand driven bull market which typically provides multiple opportunities to make sales. The Van Trump Report explained the current situation, “I’ve worried as of late that perhaps we’ve run too far too fast. As I’ve mentioned many times, demand-driven bull markets tend to give you many opportunities to jump on the bullish train. What happens is when the market starts transitioning from an over-supplied bear it goes through a crazy price discovery period trying to better understand demand and what the market is willing to pay. The market finds itself in a much different landscape and environment than it was previously so it can easily get out ahead of itself. It will push-push-push, then all of a sudden pause, look around, and realize it has gone too far too fast. It will then pullback, reset, and do it all over again, eventually charting higher lows and higher highs….On the flipside a “weather market” tends to be fast and furious to the upside and rarely gives you an opportunity to jump aboard once you’ve missed the train. What makes a “weather market” so much different is that price gains can disappear just as fast or perhaps even faster than they were added.”
The USDA will announce the next WASDE and Crop Production reports on November 10th. This week the agency lists the U.S. corn harvest at 72% complete which well ahead of the average pace of 56%. With reports of disappointing yields coming in from some areas of the country, bulls believe the USDA will need to reduce the national yield and overall production total. They also look for adjustments to be made to the U.S. export and the Chinese import forecasts.
We’ve heard for a few weeks now that soybean planting in Brazil is running 2 to 3 weeks behind normal. AgRural estimates that as of last Thursday 23% of the soybean crop had been planted with 15% or 13.5 million acres planted within just that 7 day window. AgRural added, “But the state needs widespread rainfall in the coming days to ensure good conditions for germination and initial crop development. With rains on the radar, planting will gather pace in the Center West over the coming days.” Keep in mind that while the crop is getting planted in many regions the need for rainfall only increases as the season progresses and with a strong La Niña pattern developing this crop may face more hurdles before it reaches the finish line.
Several areas of the U.S. have experienced drought conditions during the 2020 growing season and expanding dryness is beginning to dry up grazing pastures which is forcing cattle into feedlots. In September placements in feedlots totaled 2.23 million head, 6% higher than the previous year. Paul Defoor, co-chief executive officer at Cactus Feeders in Amarillo, Texas said, “We are in a bit of a drought. Cattle would like to be on pasture a little bit longer, but it’s not out there.” Cattle that are not able to graze pastures have now drove cattle on feed to record levels, yet another consequence of the strengthening La Niña weather pattern.
CFAP 2 payments topped $7.6 billion as of October 25th. The distribution breakdown at this point shows: $2.2 billion for corn, $1.7 billion for cattle, $832 million for soybeans, $793 million for sales commodities, $790.1 million for milk, $391.3 million for wheat, $377.9 million for hogs/pigs, $169.9 million for upland cotton and $17.8 million for eggs/boilers.
Looking at the payouts by state records show Iowa leads with $776.9 million, Nebraska $517.9 million, Minnesota $510.2 million and Illinois with $505.7 million round out the top 5. Payments for CFAP 1 stand at $10.3 billion. (USDA)
Implications of “green” energy and the Green New Deal for all aspects of the agriculture community are enormous and everyone should be well aware of the consequences our industry may face. The Agricultural Retailers Association (ARA) released a new study that examined what impacts the U.S. biofuels, agriculture industry and economy will encounter as the use of electric vehicles increases. Proposals to ban internal combustion engine vehicles by the year 2035 and 2050 serve as the economic models for the study and are used along with case studies provided by the U.S. Energy Information Administration’s Annual Energy Outlook. The study warns that the use of ethanol and biodiesel by light-duty and freight vehicles could diminish by up to 90% for ethanol and 61% for biodiesel. This would lead to drastic reductions in usage of both U.S. corn and soybean. Corn used for ethanol production would fall by 2.0 billion bushels and cut corn prices by 50% to $1.74 per bushel, soybean usage would fall by 470 million bushels causing prices to fall by 44% to $4.92 per bushel. This proposed ban would reduce U.S. net farm income by $27 billion devastating the agriculture community.
The faster the implementation of the ban the more severe the consequences and the impacts will resonate across the entire industry. Economic losses throughout the biofuels value chain range from $105 billion to $185 billion, federal, state and local tax revenue losses are expected to range from $39 to $69 billion through 2050.
The USDA program known as WHIP+ (Wildfire and Hurricane Indemnity Program) is accepting applications until October 30th for losses in 2018 and 2019. While the name of the program itself does not sound like something farmers in our part of the country would qualify for the title is misleading. WHIP+ is designed to compensate farmers for crop losses due to natural disasters which include drought and excessive moisture. If you have any questions regarding eligibility please call your Farm Service Agency, remember the application period expires October 30th. (Brownfield Ag)
Expected rainfall totals through Sunday are shown in the first map below.
The temp and precipitation outlooks for November 1st through November 5th show a return to normal temps across the Upper Midwest with drier than normal conditions predicted for a large percentage of the country.