The spring planting season is trying to get underway in the U.S. but is struggling. This is in part from the ongoing rain and snow events that keep moving through the U.S., but also from cold temperatures. Soil temperatures have not warmed to levels that seeding should take place in most regions of the Corn Belt. Trade really has not reacted to this news as expected though, as analysts know that with today’s equipment, a large amount of seeding can take place in a short period of time once conditions are right. This has prevented the addition of risk premium, and allowed speculators to maintain record short positions, mainly in corn.
This year’s slow start to the spring planting season is having more of an impact on wheat than corn or soybeans so far. This is because typically we see active spring wheat planting taking place at this time. Little of this has been done though as rains, snow and well below normal temperatures are preventing planting from taking place. Late planted spring wheat tends to have lower yields, and it is not out of the question that some fields could be seeded to other crops all together. This news is being tempered by the fact the world supply of wheat is more than enough to satisfy demand.
Even with delays, we will have to get into May before much reaction is seen in the market.
While all attention in the U.S. is on planting, in South America it is on harvest. The beneficial weather those countries have seen has allowed crops to finish out under near perfect conditions. As a result, crop size estimates have increased. This now has analysts projecting the Brazilian soybean crop at a size that will be second only to last year’s record crop. Argentina is reporting record production on both corn and soybeans. These reports have further lessened worries over any delay to planting or production loss in the U.S. for this coming year.
The sizes of the crops in South America are also causing downward pressure on our markets. These stocks are being offered into the global market at a sharp discount to the U.S. In turn the U.S. needs to lower its values in hopes of securing any export demand at all. In a few cases this has actually widened the price spread with South America to a point where U.S. imports would make economical sense.
We are starting to see more doubt cast over China’s soybean demand projection for this year. The U.S. Department of Agriculture is currently estimating a Chinese soybean import total of 105 million metric tons for this year. Chinese officials have this total at just 91 million metric tons. The difference between these two totals is tied to the African swine fever outbreak that continues to devastate China’s hog production. This difference could mean an additional 514 million bushels of soybeans for the global market.
The spread of ASF is getting more attention in the marketplace. Chinese officials claim that nearly 200 million hogs have been culled from the disease. China has also been in the global market for pork and made several purchases from the U.S. Not only does this show demand, but also that China may be willing to resolve its trade dispute with the U.S.
While this export business is good news for the U.S. pork industry, it raises concern with grain and soybean exporters. The U.S. can only export a certain amount of pork before reserves will be cut to a minimal level. After that China will turn to other sources for its pork needs. This will leave the U.S. missing out on grain and soybean exports until China’s hog herd rebuilds, which could take up to three years.
The logistics issues caused by the March floods in the Midwest are still impacting the markets. The most talked about of the issues is grain movement, and how buyers have been forced to pay incentives not seen in the past several years just to entice deliveries. Logistics are not just impacting deliveries, but the movement of finished products as well, especially ethanol. There are plants sitting across the Midwest that are not able to get stocks to areas of need, which has actually led to ethanol imports.
New government loan rates have been announced for U.S. commodities which could greatly impact the way crops are marketed. The new loan rate on corn has risen from $1.95 per bushel to $2.20 per bushel. The soybean loan rate went from $5 to $6.20. For wheat the rate increased 44 cents to a $3.38 floor. These higher rates make it more inviting for a producer to use the loan program to generate income, especially in times of depressed markets. As a result, cash buyers may need to pay greater incentives to prevent enrollments.
The U.S. Census Bureau released some sobering news on the U.S. farming industry. The number of U.S. farms at the end of 2017 totaled 2.04 million. This was a 3.2 percent reduction from 2012. What is more noticeable is that of these 2.04 million farms, 105,400 accounted for 75 percent of all commodity sales. Of the total number of farms, 77,000 posted sales in excess of $1 million, while 1.56 million had gross sales of less than $50,000.
This commentary is the sole opinion of Karl Setzer. 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, contact Karl Setzer at 800-858-3738, ext. 411, or at email@example.com. You can also follow Karl on Twitter @ksetzergrains.