Once upon a time this winter, the markets felt like they could give us some better opportunities to finish pricing the 2018 crops and get started on pricing some of the 2019 crops. That hasn’t happened, at least not yet.
These are some of the reasons the markets have had a dismal winter season:
- The biggest market issue continues to be the lack of any agreement with China on trade. Most of the chatter has been very positive. Daily and weekly news reports have all been mostly positive that progress is being made, but there isn’t any definitive deal. The market has grown tired of talk and rumors about China. It wants to see a deal consummated — and then it wants to see actual export sales of not just soybeans, but also some of the corn and wheat that has been rumored to be part of the deal.
- Weather in Brazil and Argentina has improved. Brazil’s soybean crop will be between 110 and 115 million metric tons following the mid-season dry conditions. Analysts were talking about a 120- to 125-MMT crop six months ago. The early heavy rains in Argentina subsided. Argentina’s soybean crop is now expected to be between 52 and 54 MMTs. This compares to last year’s drought-reduced crop of 38 million metric tons.
- The USDA’s series of reports that were supposed to be released in January but were delayed until February offered no help to prices. The quarterly stocks reports were considered slightly bearish. The only number that was somewhat bullish was the winter wheat planting estimate. That number came in about one million acres below expectations.\The March USDA supply and demand revisions were also bearish. The USDA reduced the wheat export forecast by 35 million bushels and reduced the corn export forecast by 75 million bushels. They also reduced the ethanol production forecast by 25 million bushels. The result was another increase in the ending supply estimates for wheat and corn. The USDA increased the soybean crush estimate by 10 million bushels and reduced soybean ending supplies by 10 million bushels. That was an insignificant adjustment.
The next important USDA report is the planting intentions estimate on March 29. The assumption by the trade has been that soybean acres will decline by as much as four to five million acres and corn acres will increase by three to four million acres. There are some reasons to question if these acre shifts will be as big as these expectations, including:
- Initial crop revenue insurance prices have been calculated. The numbers, compared to the initial prices a year ago, are:
| |
2018 Initial |
2019 Initial |
| Corn |
$3.96/bu |
$4.00 |
| Soybeans |
$10.16/bu |
$9.54 |
| Spring Wheat |
$6.31/bu |
$5.77 |
| Durum |
$7.11/bu |
$5.98 |
| Oil Sunflower |
$17.50/cwt |
$16.70 |
| Source: USDA/RMA |
|
|
Spring wheat prices have continued their sharp decline. That could mean fewer spring wheat acres than expected.
- It has been a very wet and cold winter across the eastern two-thirds of the U.S., including the Northern Plains and the Corn Belt. This has prompted some very preliminary talk about delayed planting and perhaps increased prevented plant. It is simply too early to know how the weather will play out, but the wet pattern wasn’t showing signs of changing as of the middle of March.
The crop that does seem to offer a good alternative in 2019 is oil sunflower. Oil sunflower prices have remained steady throughout this winter despite the weakness in every other market. New-crop oil sunflower prices have also been very firm and near the levels of a year ago.
This market continues to shift away from NuSun® toward HOSF (high oleic) quite quickly.
The Northern Hemisphere growing season is rapidly approaching, even though it still doesn’t “feel” like spring. Growing season weather from North America to the Black Sea region will be the next price setter. The world needs big corn (feed grain) and wheat crops to hold prices at current levels. World demand continues to set new records every year. The world soybean situation is different. Supplies are at record levels, and there is doubt about China’s future demand for soybeans.
The final resolution to the U.S./China trade dispute is also important, but it has almost become “old news.” There was a line from a famous movie that sums up the market’s opinion of the China trade talks: “Show me the money.”
* Mike Kruegerfounded 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 for its use.