USDA Updates Balance Sheets
The long-awaited July supply and demand report has been released and did contain a few surprises. Corn yield was left unchanged from June at 166 bushels per acre, and acres were upped to 91.7 million from last month’s 89.8 million. This will give the US a crop of 13.875 billion bu, 195 million bu more than projected last month. Very few changes were made to corn demand, giving us a new crop carryout estimate of 2.01 billion bu. This was 335 million bu more than the June prediction, and above the range of trade expectations.
Updated soybean data gave us a 4.6-million-acre reduction to plantings and a 1 bushel per acre yield cut. This puts the national average soybean yield estimate at 48.5 bushels per acre and a crop of 3.845 billion bu. We did see a slight reduction to demand, but a tightening of new crop reserves is still expected. New crop soybean ending stocks are now projected at 795 million bu compared to the 1.045 billion bu in June.
Few changes were made to the wheat balance sheets, but that grain received the most bullish reaction. Wheat ending stocks are now estimated at an even 1 billion bu, down 72 million bu from last month.
The global numbers were mixed. World corn ending stocks for the 2019/20 marketing year are pegged at 198.9 million metric tons, up 8.4 million tons from June. The world soybean carryout number is 104.5 million metric tons, 8.2 million fewer than last month’s projection. Global wheat carryout is now estimated at 286.5 million metric tons, down 7.8 million from June.
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 bu of corn to the world supply this year. This will easily negate any loss to the US crop.
Brazil has already upped their 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.
One area the US is seeing solid demand is for beef and pork, although numbers do trail trade expectations. According to Census data, US 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 of 2018 with China taking 56.8 million pounds. This was the highest volume of pork exported to China in the past three years.
Even though China has bought some US pork, more business may be coming. Trade is becoming increasingly optimistic that China will eventually import larger volumes of US 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 US will be able to fill.
While talks are still taking place between the US 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 bu of US 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 US has in place on Chinese imports.
According to a survey conducted by Creighton University, ag lenders across the US are seeing a rise in loan defaults. Lenders across ten states claim that just over 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, 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, feel free to send an e-mail to firstname.lastname@example.org. You may also follow Karl on twitter; @ksetzergrains