One thing that has be consistent with this year’s planting and growing season has been variability, and there are no indications this will end any time soon.
This all started last spring when heavy rains delayed planning in the eastern Corn Belt, as did flooding in parts of the Western Belt. These factors got the crops off to an uneven start, and this has not changed. As a result, this year’s crops are now maturing at an uneven rate and will likely make for a stretched-out harvest season.
On one hand this could set the crops up for additional weather stress, but at the same time, it could ease congestion at terminals this fall. One of the biggest complaints in the cash market is the congestion we see when now crop deliveries take place. If harvest is stretched out and these backlogs do not occur, we tend to see less basis weakness during the fall season.
Basis on a whole is more variable this year than in many. Some regions of the US report having more than enough inventory and are posting weak basis values. Others are posting some of the strongest basis values in recent history to try and pry bushels out of farmer hands. In fact, basis has gotten so strong this year that we have seen an elevated interest in importing cheaper grain from foreign producers. Even with this taking place basis values have not softened, especially in the Eastern Corn Belt.
Variability is also taking place in the end user market. Some processors continue to push for deliveries to capture any positive margin they can. This is taking place more in the soy complex where crush margins remain high. At the same time ethanol plants have went off-line this summer due to the tight corn supply and poor margins.
One of the greatest variances this year will be yields. Reports on this year’s crops range from the “best ever” to the “worst ever.” Again, this difference is mainly between the East and West Corn Belts, but even within those the crop is quite variable. This is making it very difficult to predict with accuracy what size of crops we will harvest this fall.
This variability will make marketing crops this year more of a challenge than in other years. The best plan is to have a marketing plan in place and stick to it as the year progresses.
The United States is seeing more pressure than expected from Brazil in the global corn market. The USDA currently predicts Brazilian corn exports for the year at 35 million metric tons. Given the recent trend of buyers passing on US offerings in favor of those from Brazil, and that Brazil has nearly 8 million metric tons more corn in reserve than a year ago, we may see more export competition than expected.
This pressure from Brazil may not ease any time soon. Brazilian officials are predicting corn production for the 2019/20 year at 104 million metric tons. This would be 3 million metric tons more than the crop that is currently being harvested. Brazil is also forecasting a record soybean crop next year at 123.8 million metric tons compared to this year’s 118.2 million metric tons.
The United States is not the only country being impacted by Chinese trade contentions. In the first half of 2019 the United States has seen Chinese soybean demand decrease by 62.6 percent from the same period in 2018. Canada has also had trade issues with China and seen a decrease in canola trade of 53 percent. China has taken most of its import business to South America, but even then, total demand is down due to the ongoing African Swine Fever losses in hogs.
One country that is seeing an increase in oilseed demand is Argentina. Argentina is on track to export 35 million metric tons of soybeans and soy products this year. This is a 35 percent increase from a year ago. One thing that is most noticeable is the increase in whole soybean exports, as typically we see more products exported out of Argentina.
We continue to see debate over current conditions, as some analysts believe they are favorable while others believe they are causing additional crop stress. Temperatures have moderated across much of the US, but precipitation has been limited. The question is if this is hurting crop development at this stage given the level of soil moisture we have had all season. While some areas are showing abnormally dry soils nothing has reached a level of urgency yet. Until this happens, we may see a muted reaction in the futures market.
A statement from leaders in the ethanol industry paints a dark outlook for its immediate future. A leading ethanol producer claims that unless economics change soon, more plants will slow operations, some will go off-line, and some may permanently close. The concern is the margins that are currently the lowest for the season since 2015. Over-production is a main worry for ethanol as the US does not have the infrastructure to consume more ethanol, even with higher blend rates.
This commentary is the sole opinion of Karl Setzer, commodity market risk analyst 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, e-mail Karl at email@example.com. You may also follow Karl on Twitter via @ksetzergrains.