As we work into the fall harvest season, we are seeing more debate on how much storage the United States has available. At the present time it appears storage space will be more abundant than going in to last fall. Heavy country movement to start last marketing year put more grain and soybeans directly into the supply line rather than being stored. This space availability may limit basis weakness this fall as buyers will need to keep grain flow from halting.
Trade will closely monitor not only harvest activity, but how much fall tillage follows. Historically an open fall leads to more tillage and can favor corn acreage. Input costs are much higher this year than in recent ones though, and this may temper fall applied fertilizers. Given the need for large acreage of both corn and soybeans this coming year the debate over potential plantings will be a factor all winter.
It is no surprise that we are seeing a shift in commodity market focus from old to new crop. One point that is sticking out is the slow sales pace on new crop soybeans. At the present time the United States has roughly 850 million bu (mbu) of new crop soybean sales on the books. This is a 450 mbu reduction from what was sold a year ago at this time. Lower Chinese demand and the larger Brazilian soybean crop are the leading factors for the lower sales. Unless this pace picks up soon trade will start to rethink the 2.09 billion bu projected export figure on soybeans for the marketing year.
Adding to these slow sales on soybeans is the likelihood of a narrower window for sales. Soybean planting is well underway in Brazil. This is earlier than last year when farmers in the country waited for rains before planting. It is quite likely that Brazil will have soybeans for export by January of this year, which is why their offerings at that time are currently $1.00 per bushel under the US. This may leave the US with the months of October, November, and December to make sizable exports.
What the US sees for soybean exports will hinge heavily upon China. While China is the world’s leading soybean importer, the volume they take may start to decline. This is mainly from reports China is going to see a 5% reduction to its hog herd this coming year to help stabilize domestic hog and pork values. This will lead to reduced feed grain demand as well. Pork production in China is forecast to drop 14% from the hog reduction, which will open the door for higher pork imports, and possibly beef as well.
This year’s drought has impacted more than just crop production. Livestock producers have been culling cattle al year due to poor pastures and high feed costs. Cumulative beef cow culling is up 10% this year, making it the second consecutive year of liquidation. The concern with this is what it will mean for long-term US beef production. While this will likely weigh on US feed grain demand, it is also likely the reduction will give additional support to US beef values.
Urban sprawl is a term used to describe the expansion of cities into rural areas. Typically this is associated with the United States are focuses on large metropolitan areas. Other countries in the world are experiencing urban sprawl as well, with China getting more attention. Chinese officials claim that between 2009 and 2019 the country lost 6% of its arable land due to urban expansion. This is more than the country had expected. We are still seeing larger crops out of China though as farming practices continue to improve, mainly the use of higher-grade inputs and advanced seed genetics.
One factor that has remained constant with this year’s crops is high variability. Several regions of the United States have experienced less than favorable growing conditions, especially in the Upper Plains and Pacific Northwest. While crop production has been affected in these areas, it is not a total loss. This is raising questions over how much will be zeroed out this year while other regions will only see a slight reduction to yield. There are several other regions of the United States that are reporting quite favorable yield potential, with several claiming they will see record production.
The most uncertainty in the global market is on wheat where countries such as Russia and Brazil claim their wheat crops have been hurt be adverse weather. Canadian officials also believe their wheat production will be slashed this year from drought. Other wheat producers are forecasting larger crops than first predicted though, including Ukraine and Australia. There is little indication these variable crops reports will end in the near future, which is going to keep futures market volatility elevated as well.
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.