The recent baseline numbers from the USDA created more questions than answers.
These numbers are the USDA’s long-term outlook prediction for agriculture. Ending stocks of corn and soybeans are forecast to be adequate for the next five years, but for this to happen, acres and yield need to remain quite high. This is especially the case for soybeans where ending stocks are not much higher than the current year’s estimate, even with acres to increase substantially. This shows us just how fragile soybean balance sheets are and how we cannot afford much in the way of production loss.
Another segment of the baseline data that is concerning is the average price for corn and soybeans at the farm level. Corn is currently forecast to average $3.80 this marketing year but recede to $3.40 to $3.45 for the next five years. Soybeans are predicted to average $9.00 this year, $8.85 next year, then drop to $8.50 for an average. If correct, this will only put further economic strain on the U.S. agriculture market.
These outlooks are compounding negative economic news from the American Farm Bureau. According to that group, 40% of U.S. farm income currently comes from some type of aid or insurance. While these payments are helping buffer low commodity values, they do not erase them 100%. This is being verified by data showing U.S. farm bankruptcies from 2018 to 2019 increased a huge 24%.
It appears as though China’s appetite for soybeans is growing. Chinese soybean imports are currently estimated at 85 million metric tons for this marketing year. This would be down 11.8% from a year ago. Crush margins in China have risen considerably in recent weeks though, with soy oil values now at a two-year high. This comes as Chinese farmers are attempting to rebuild hog herds following the African Swine Fever outbreak. This could start to push China’s soybean demand back to previous levels.
Another region of the globe that has upped their commodity imports is the European Union. For the 2019/20 marketing year the EU has already imported 6.5 million metric tons of corn, up from 5.1 million metric tons for the same time a year ago. Soybean imports now stand at 4.25 million metric tons, up 2% from last year. The real increases to imports are to soy meal which is up 20% and wheat which is up 50%. These higher import levels are the result of the drought that impacted the EU countries over the past year.
Information from the World Organization of Animal Health shows concerns over the world pork supply. According to the group, the world hog supply could be cut by 25% from the ongoing spread of African Swine Fever. There are concerns over what these losses will have on the world pork supply and what it means for food availability on a whole. Others believe this will push more demand to poultry and beef, causing those values to spike.
The United States is already seeing elevated demand for its pork in the global market, even from China. Marketing year to date Chinese imports of U.S. pork are up 91% from a year ago. The reason this number is so large is that a year ago China was not buying any U.S. pork to speak of. For 2019, U.S. pork exports are forecast to rise 12% on the year and increase another 11% in 2020.
Even though rains have moved through Argentina, sources in the country claim these were too late for the country’s wheat crop. Officials have now lowered Argentina’s wheat yield to 2.8 metric tons per hectare from earlier estimates for 3.2 metric tons. Total Argentine wheat production is now estimated at 19 million metric tons, 2 million metric tons under their previous estimate. Even with this decline Argentina is still upping their wheat export offerings, showing just how ample they believe their reserves will be.
There are some changes coming for Brazilian farmers that could have a sizable impact on the global market. Brazilian farmers are currently not allowed to work soybean fields from June 10 to Sept. 10 to give the soil a rest. By doing this, farmers are better able to control insects and soybean fungus, which increases yields and lowers production costs. The Brazilian government also says all soybeans need to be planted by Dec. 31 to allow for this window.
There is now talk that this date will be pushed back to Feb. 10 to allow more time to raise soybeans. In turn, this could reduce the window of time available for double cropping, though, and cut into Brazil’s corn output.
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.