Even though we are now well into the domestic growing season, acreage remains a market factor. For one, trade is disputing the planted and harvested acres the U.S. Department of Agriculture is currently using in balance sheets. Many analysts and producers alike are expecting to see decreases in these numbers as the market year moves forward, but that is questionable. Historically, we have seen very little in the way of acreage declines from July forward. The delays to planting and prevent plantings this year may change that trend.
Not only is trade still debating this year’s acreage, but we are already starting to see attention on what we may see for next year’s acreage as well. We have recently seen the new crop price ratio tighten to 2:1. This means it only takes two bushels of corn to equal the value of one bushel of soybeans and is historically associated with elevated corn plantings.
This ratio has widened slight in recent weeks though as trade is less worried over a small corn crop from this year. The concern in the corn complex has been a small 2019 corn crop and how it would drop corn reserves to a minimal level. These fears have eased, especially following the heavier late-season corn planting that took place. Even if this corn is used for feed, it will still make more corn available for other needs.
Another factor being monitored as we look at next year’s corn production in the Us is inputs. We have already started to see a firming of fertilizer values as it is believed that elevated acres will create more demand. There are also some concerns over seed availability if production from this year is not as much as in a normal year.
Acreage is not just a factor in the domestic market. Soybean harvest has just concluded in Brazil and we are already hearing reports of elevated plantings for this coming year. Sources in Brazil claim the country will expand soybean plantings by 2 million acres this coming year. One reason for this is the elevated values Brazilian farmers are seeing, but also from demand prospects. Brazilian exporters do not see a quick end to the trade dispute between the U.S. and China, and feel they will see elevated soybean demand as a result. Brazil has also been steadily increasing its soybean production in recent years, so to see another 2 million brought into production is not uncommon.
We are also hearing of elevated wheat plantings in Argentina. Argentine officials believe that country will expand wheat seedings by 1 million acres this year. While this does not seem like a significant amount, when added to larger crops out of the Black Sea and Russia, it further cushions a global wheat supply.
We need to remember there are several factors that will ultimately impact acreage next year though, with weather being the primary one. While these are in fact moving numbers, trade will monitor them as the market evolves into one with perpetual production and supplies coming from the global market.
When we think of market uncertainty we immediately think of production, especially at this time of year. This is even greater in today’s market where we are not only trying to determine yields, but acreage as well. The USDA has stated they will issue more data than ever in the August supply and demand report, but ahead of this trade is even more confused. Analysts are trying to determine production and usage in a market that is based on nothing but variables. As a result, we have seen a build in market volatility and a choppy pattern in futures values.
One of the greatest unknowns from the demand side is China. The United States and China have been at odds when it comes to trade for the past several months, and it has taken its toll on U.S. balance sheets. While talks have taken place, both sides remain divided on their stance with little progress being seen. Chinese officials have announced the products they wish to buy but are unwilling to do so until the United States relaxes it tariffs on China’s imports. As a result, we have seen U.S. trade with China drop to minimal levels. The greatest concern with this is now that China is importing its products from other sources with little issue, it may be difficult for the United States to get this business back.
Adding to the uncertainty in the global market is the rise we have seen in production. Many of the world’s commodity suppliers are producing larger crops than in recent history. The main one of these is South America, where record crops are again being forecast. Not only is this on soybeans, but on corn and now wheat as well. This rise in production may only increase the volatility in the U.S. market.
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 email@example.com. You can also follow Karl on Twitter via @ksetzergrains.