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Government Shutdown Puts Markets on Information Diet

Friday, January 25, 2019
filed under: Marketing/Risk Management

         Markets, like anything else “alive,” need constant nourishment. The nourishment for markets is information — information about U.S. and world crop production, grain supplies, exports, etc.                
         The “partial” U.S. government shutdown that became the longest in history stopped a significant and important flow of information from the USDA that most market analysts rely on heavily in their decision-making process. The January series of USDA reports were not released on schedule because of the shutdown. And, they had not yet been released as of the mid-January date this article was written.  
         The January USDA reports are important because they include the following numbers: 
         • The “final” U.S. 2018 corn and soybean yield and production estimates. 
         • U.S. winter wheat planting estimate. 
         • The January 1st quarterly stocks estimates. 
         • U.S. and world supply and demand estimates (WASDE). 
         In addition to the monthly reports, we also rely on daily and weekly USDA export reporting.  Exporters must report any export sales of 100,000  metric tons or more to the USDA within 24 hours.  Any reported sales are then made public by the USDA.  None of that reporting has happened with the government shutdown. 
         Unfortunately, the trade had been looking for some positive numbers in these USDA reports.  Most analysts expect the USDA will reduce the soybean and corn yields from the November estimates.  That, in turn, should mean smaller 2018/19 ending supplies.   
         It is also likely that U.S. farmers planted less winter wheat than originally expected.  The corn and soybean harvests were very late.  That reduced some soft red winter wheat acres.  The Southern Plains had an extremely wet fall.  It was too wet to get hard red winter wheat planted in some areas.  All these reports will eventually get released, but not until the government shutdown ends.  
         Weather in Brazil and Argentina has not been cooperating either.  It has been very dry across a large part of Brazil and too wet across much of Argentina. Soybean production in both these countries won’t be as big as earlier forecasts.  Part of the problem in Brazil is that farmers planted a high percentage of shorter- 
season varieties because the soybean planting season was earlier than normal.  These shorter-season varieties were hurt by the early heat and dryness.   
         Oilseeds markets will need some help from smaller world production to prevent prices from dropping.  U.S. and world supplies of soybeans are now at record high levels following consecutive years of record production in the U.S. and Brazil.           
         Early soybean production estimates for Brazil’s 2019 soybean production were as large as 125 MMTs.  That would have been a record.  Estimates in mid-January had dropped to 116 to 120 MMTs.  That production number needs to get below 110 MMTs to have much of an impact on the markets. 
         The potential size of U.S. soybean ending supplies is impressively big.  If farmers decided to cut soybean acres by four million, it would only reduce the ending stocks estimate by 100 million bushels, down to 990 million bushels.  It would take a yield reduction down to 45 to 46 bu/ac to significantly reduce this ending stocks projection and make the soybean complex bullish. 
         The biggest bear in the room is still the fact that China and the U.S. have yet to conclude an agreement on trade.  It appears that progress is being made as we head toward the March deadline for an agreement. China has purchased U.S. soybeans.  Some believe they have bought as much as 180 to 200 million bushels (5.0 MMTs). There has additionally has been a lot of chatter that China will also buy some U.S wheat, corn and sorghum. 
         The first legitimate estimate of how many acres of corn and soybeans U.S. farmers will plant in 2019 will come in the USDA’s planting intentions report that is scheduled to be released on March 29.    
 * Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility. 
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