The White House has announced it will again be distributing subsidy payments to offset economic losses from the ongoing trade dispute between the U.S. and China. It has been reported that the White House has proposed payments of $2 per bushel on soybeans, 63 cents per bushel on wheat, and 4 cents per bushel on corn, but these numbers were quickly disputed by government officials. Little other information is known at this time, but the initial reaction is these payments will further entice farmers to plant soybeans over corn.
While we are hearing more reports of production concerns in the U.S., mainly on corn, other producing countries are predicting record crops. The main one of these is Brazil. Brazilian officials believe this year’s corn production will reach a record 99 million metric tons, well above last year’s crop of 80.7 million metric tons. The previous corn crop record in Brazil was 97.8 million metric tons in the 2016-17 growing season. Near-perfect weather conditions and expanded plantings are the primary reason for the elevated crop size. Even with this large crop in Brazil, the global corn inventory is expected to shrink this year. This is from expanded demand, mainly feeding and ethanol production.
Global commodity demand is becoming more uncertain. The greatest unknown is in China as the country continues to fight African Swine Fever. Thoughts are this will reduce China’s hog production by 10 percent to 30 percent.
The obvious concern with the ongoing African Swine Fever outbreak in China is what the impact will be on commodity demand, mainly soybeans. China crushes large volumes of soybeans to produce enough meal for feed. Analysts now believe China will import fewer soybeans due to the disease. The latest projections are for 84 million metric tons of soybean imports in the 2018-19 marketing year, down from the initial projection of 88 million metric tons.
The real concern with Chinese soybean demand is what may take place in the 2019-20 marketing year. Market analysts had been hoping for a rebound in soybean demand to the 90 million metric ton range. According to the U.S. attaché in China, soybean imports during the period will only total 83 million metric tons. At a time of elevated production, this is likely to keep a cap on any attempt of a soybean rally.
One reason China is expecting lower soybean imports is from elevated domestic production. China is pegging this year’s soybean crop will be 8 percent greater than last year at 17.3 million metric tons. This will be the largest Chinese soybean crop in the past 14 years.
Although much of the focus in global trade is on China, we cannot overlook the business that is being done with Mexico. Mexico imported 265 million bushels of U.S. corn last year. Given the recent trade dispute the U.S. has with Mexico, we may lose some of that business this year. This is especially the case with the record production we are seeing in South America.
We are also starting to see more production worries on soybeans. With corn planting being delayed, so is soybean seeding. Even with soybeans that have been seeded there are concerns over the lack of heat units the crop has received. The concern on soybean production is less than the worry on corn, though, as both the domestic and global markets have a much larger cushion on that commodity.
One factor that needs to be monitored on all crops this year is what the excessive moisture this spring has done to soil conditions. The main concern is that we have seen fertilizer loss take place. While producers can reapply fertilizer if needed, it will only add to their cost of production if they do so. Given current market economics and market forecasts, this is an added expense that will be hard to absorb.
Trade is already starting to look forward to two important reports that will be released at the end of June: the quarterly stocks and revised planting reports. For acres, nearly all analysts are expecting to see fewer corn and wheat acres this year and an increase in soybean plantings from the March intentions.
This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at firstname.lastname@example.org. You can also follow Karl on Twitter via @ksetzergrains.