While commodity production is an issue in the United States, this is not the case in the world market, especially on corn. Three of the world’s leading corn-producing countries, Brazil, Argentina and Ukraine, are all expecting record corn crops this year. It is currently believed that between these three sources they will add nearly 2 billion bushels of corn to the world supply this year. This will easily negate any loss to the U.S. crop.

Brazil has already upped its corn export forecast for this coming year to 38 million metric tons. This compares to the country’s 31 million metric tons projection in March.

We are also seeing some questions on domestic corn demand. One is ethanol where high corn prices and a retreating energy market have brought negative margins to the industry. We are already hearing of plants slowing or idling operations because of these losses. We are also starting to see higher feed wheat usage in some regions, especially where quality is too low for milling purposes.

When it comes to domestic demand, trade is also starting to question soybean crush. The NOPA crush report for May fell well short of trade expectations and the volume we had in April, and exports of meal are down as well. Yet even with this lower demand, crush margins remain quite high. Trade is questioning how long this divergence can take place.

One area the U.S. is seeing solid demand is for beef and pork, although numbers do trail trade expectations. According to Census data, U.S. beef exports in May were up 11.8% from a year ago. During the month a record 63.2 million pounds of beef were exported to South Korea. May’s pork exports were up roughly 1% from May 2018 with China taking 56.8 million pounds. This was the highest volume of pork exported to China in the past three years.

Import data from China shows their buying of U.S. ag products this year has dropped considerably. Chinese imports of U.S. products from January through May are down 55% from a year ago, mainly from the tariffs that have been enacted. At the same time, China has imported 21% more products from Brazil. There was a spike in Chinese purchases of U.S. soybeans in May though as resolution talks took place.

Even though China has bought some U.S. pork, more business may be coming. Trade is becoming increasingly optimistic that China will eventually import larger volumes of U.S. pork, even with tariffs in place. This is because of the loss in China’s domestic pork production from African Swine Fever that now stands at 30% of its hog herd. Initially it was thought this loss would only total 16%.

Another country that may need imports of pork is Vietnam. ASF is spreading rapidly across Vietnam and wiping out large volumes of hogs there as well. Even if these buyers opt for other pork supplies, it will still create a void in the global market that the U.S. will be able to fill.

While talks are still taking place between the U.S. and China on trade issues, little progress has been made in recent weeks. This is a little concerning for trade as hopes were the meeting between the two sides at the G20 summit would have brought more business. This is especially the case after China bought a large 20 million bushels of U.S. soybeans just prior to the talks. China is again booking soybeans from South America though, indicating the purchase was more of a “good faith” move than out of need. Many of the same issues continue to hinder a resolution to the dispute, mainly the tariffs the U.S. has in place on Chinese imports.

According to a survey conducted by Creighton University, ag lenders across the U.S. are seeing a rise in loan defaults. Lenders across 10 states claim that just more than a quarter of them are seeing rising defaults and one-third expect to see defaults rise this year. A large 50% of lenders are seeing farmers exit the ag industry altogether.

The new crop corn/soybean price ratio is again being noticed by trade. This ratio is holding close to 2:1 which is an indication of elevated corn plantings. This is in response to the poor corn crop that is expected this year and the need for more corn production next year. There is a different way of looking at this though, and it could be the soy complex is trying to deter plantings with lower values. If this thought is correct, it could favor corn plantings without a rally in futures.

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 ksetzer@agrivisor.com. You can also follow Karl on Twitter via @ksetzergrains.