MENOMONIE — While market analysts are starting 2019 behind the eight ball due to the unavailability of key agricultural reports during the federal government shutdown, Brenda Boetel, commodity marketing specialist at UW-River Falls, offers some insight into the coming year’s crop and livestock markets.
Where crop prices go in 2019 will depend a lot on what happens in the trade war between the U.S. and China, Boetel told agricultural bankers attending the Western Wisconsin Ag Lenders Conference Jan. 10 in Menomonie.
Along with the expected resolution of the trade war this year, bullish factors for soybeans include the reduction in Brazilian and Argentinian production due to hot, dry weather and disappointing early-season yields.
Market fundamentals, including record U.S. bean production, a large carryover and trade concerns, are historically bearish for beans, but these already are built into the price, Boetel said, so any surprises will be on the bullish side of the market.
The end of the trade war “will be our surprising good news that will help soybean prices,” she said. Sixty percent of U.S. soybeans went to China in marketing-year 2017, and the U.S. typically dominates exports to that country in November. Last November, there were zero U.S. bean exports to China, while Brazil exports to China in November jumped by 84 percent.
“This is a huge impact for beans,” Boetel said.
Bearish factors include high inventories — a 960-million-bushel carryover — that limit any upward momentum. Soybean acreage is expected to remain large this year, but if the trade war ends, farmers will have incentive to plant more corn over soybeans, she said.
Boetel said the soybean cash harvest price could go as high as $9.50 per bushel, but “there isn’t a lot of upside potential for soybeans.”
Bullish factors for corn include seasonality, improved trade relations with China that could raise soybean acres, a likely year-over-year decrease in corn stocks and strong quarterly exports. On the bearish side are negative margins for ethanol production leading to some temporary plant shutdowns.
Boetel doesn’t foresee any weather-related issues for spring planting due to El Niño. An El Niño winter typically means milder conditions with less snow and a cooler, wetter summer for this region.
“I think we’ll see trend-line yields this coming year,” she said, or about 176 bushels per acre.
Corn prices likely will trade up until mid-May, according to Boetel, but there’s limited upside potential for prices. Most of the bearish news already has been incorporated, she said. To move up, corn markets need bullish news.
“More depends on the number of acres planted than anything else,” she said.
The corn cash harvest price could be as high as $4 per bushel, if 89 million acres are planted this year. If planted acreage is closer to 91 million, the cash harvest price could be about $3.35, she said.
‘Exports are saving us’
Looking at livestock markets, Boetel said that, with the continued high production levels in the U.S., “exports are saving us,” offsetting weaker domestic demand. Some segments of the industry, such as pork, have registered record production levels the past few years.
Beef production is up 13 percent from 2015 and likely will rise another 2 percent in 2019. Meanwhile, beef exports were 11 percent higher in 2018 — the third year of double-digit growth. That’s expected to change in 2019, when only a 6 percent increase is forecast.
“Those exports are really, really beneficial to the beef markets,” Boetel said. “We have a lot of beef, and it’s increasing every year. In 2020, we will likely peak on this cycle of production.”
Boetel said the U.S. exports 18 percent of its beef, but that amount makes up more than 40 percent of the total value. The U.S. imports more beef than it exports, bringing in mostly leaner cuts and exporting high-value middle meats.
“Beef is the most expensive protein in the world, especially if it’s U.S. beef,” she said.
Changes in economic conditions, such as a recession, affect cattle producers more than other meat producers, according to Boetel, as consumers, in tough times, tend to cut back on beef purchases before other, less expensive meats such as poultry.
Boetel said she expects to see continued expansion in all three major proteins — beef, poultry and pork — in 2019, with record U.S. protein production of more than 102 billion pounds. Stronger global demand is critical to keeping per-capita consumption near anticipated levels.
Growing supplies could hamper producer leverage, and profit margins will decline at the farm level while processors see larger margins. Fed cattle producers should see losses in the first half of this year.
“You have to be focusing really, really carefully,” she said. “The biggest thing is how to manage those input costs.”
The spread of African Swine Fever could create a global protein shortage, and the U.S. could see more sales to China, which is the world’s biggest consumer of pork.
Factors for livestock producers to watch in 2019 include trade (the trade war with China and the need for a bilateral agreement with Japan), the U.S. economy and recent recessionary tendencies, energy policy, immigration reform, ongoing industry consolidation and changes in regulations such as Waters of the U.S. and coming regulations for laboratory-created meat.
Synthetic meat is still too costly to produce large scale, Boetel said, but it will become more efficient in the future.