Very few changes were made to corn on the domestic side of the February World Agricultural Supply and Demand Estimate report.
Ethanol demand was elevated by 50 million bushels, but an equal decrease was made to exports. This left carryout unchanged at 1.89 billion bushels. Soybean ending stocks decreased by 50 million bushels as a 50-million-bushel increase in exports was forecast. This will give the U.S. a projected 425-million-bushel carryout. Wheat ending stocks were also lowered by 50 million bushels to 965 million bushels due to smaller winter crop.
Average cash price projections were also little changed from January. The United States Department of Agriculture is expecting corn to average $3.85 for this marketing year, soybeans at $8.75, and wheat at $4.55. The only change in these was a 25-cent reduction on soybeans.
Changes to the global numbers mirrored the domestic ones. World corn ending stocks decreased 1 million metric ton to a 296.8 million metric ton total. Soybean ending stocks were bumped up to 98.9 million metric tons due to a larger Brazilian crop being predicted. Global wheat reserves were steady at 288 million metric tons.
Yield data out of Brazil continues to point towards a large soybean crop. Initial reports out of Mato Grasso indicate a soybean crop that will be from 10 to 15% larger than a year ago. Mato Grasso is currently projected to raise 34 million metric tons of soybeans but current data indicates this could be even higher. The question is if this is a trend that will continue throughout the country, especially when harvest gets into the regions that have been suffering from drought conditions.
Trade is also starting to focus on Argentine corn production possibilities. The main area of attention in Argentina is the state of Cordoba, where rainfall has only been 26% of normal. There is little doubt this has impacted corn production in that area. Other regions of Argentina have seen 100% of normal precipitation though, and the question now is if corn production in them will be enough to compensate for losses in others.
Trade is monitoring the volume of soybeans the U.S. has sold to China. Current soybean bookings total 418 million bushels by China, with only 56 million bushels of this remaining unshipped. A year ago China had 110 million bushels of unshipped sales at this time, and two years ago the total was 167 million bushels. While the fact China is current on shipments is positive, the fact they do not have much forward contracted is worrisome.
When it comes to U.S. corn exports a factor that is being closely watched is quality. We have known since harvest began there were issues with U.S. corn quality this year, and now these are surfacing in the export market. Buyers have reportedly passed on U.S. offerings in favor of those from Ukraine as even though price is higher, the quality is better. This narrows the window for the U.S. to make sizable corn sales prior to the South American harvest.
Acreage estimates are starting to be released for the upcoming U.S. production season. A well-followed analytical firm is projecting U.S. acres at 93.4 million for corn and 86.5 million for soybeans. In the USDA’s baseline estimates from last fall we saw predictions for 94.5 million corn and 84 million soybean acres. This year’s plantings totaled 89.9 million for corn and 76.5 million for soybeans, but these were greatly impacted by the wet spring and flooding that took place. The fact is planting season is still weeks away and accurately predicting acres at this time is nearly impossible given the tremendous number of variables, with weather being a primary one.
A trend that is gaining market interest is the decline in world market share on corn trade by the U.S. The share of global corn trade the U.S. is expected to have in the 2019/20 marketing year is 27%. This is the second lowest volume in recent history, with only the drought year of 2012/13 coming in lower. A record Ukraine corn crop cut into the U.S. market share last year, as did heavy exports out of Argentina ahead of its election and concerns over export tax rates.
Data indicates U.S. farm income for 2020 will decline from 2019. U.S. farm income is expected to decline 11% in 2020 as government aid is reduced, mainly the Market Facilitation Program payments. Direct payments to farmers from programs such as this are forecast to decrease a large 36.7%. The concern is that production costs are forecast to rise this year. Unless we see a major correction to commodity futures this will strain cash flows.
Spring weather outlooks are starting to gain market attention. More snow is being forecast for the Midwest where soils remain saturated and have been all fall and winter. The concern is that under these conditions even normal precipitation this spring could generate planting delays. While early, this is not weather that would be considered conducive to the high acreage numbers being predicted, especially on corn.
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.