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Weather & China: Neither Is Cooperating

Tuesday, October 22, 2019
filed under: Marketing/Risk Management

       It’s been a fascinating, but frustrating, September and October.  It has been one of the wettest and coolest periods of time across the western Corn Belt and Northern Plains, while the eastern Corn Belt was very hot and dry. 
       Weather people were talking about a “flash” drought in Indiana and Ohio the last half of the summer.  The cool and wet fall across the Northern Plains did nothing to push maturity of the corn and soybean crops, both of which were planted record late. 
       The USDA has made no “prevent” plant adjustments to corn and soybeans. The latest USDA/FSA prevent number for corn was just over 11 million acres. You can go crazy trying to figure out how the different USDA agencies report, analyze and adjust prevent plant acres. We might never know what really got planted or will be harvested.
       The September and October USDA crop production estimates were also very interesting and raised some eyebrows. The USDA increased the corn yield estimate. It now stands at 168.4 bu/ac, up from 168.2 in September. The record corn yield was 176.6 bu in 2017. It was 176.4 last year. 
       The USDA reduced the soybean yield slightly in October.  It is now at 46.9 bu/ac compared to last year’s record yield of 50.6. Our opinion is that the corn yield will be closer to 160 bu/ac than 170 and that the soybean yield is still over-stated by one to two bushels per acre.
       The October USDA report included the first estimate of the 2019 sunflower crop. They did not break the numbers down between oil and nonoil; that will happen in future reports. They pegged the 2019 sunflower yield at 1, 724 lbs/ac. That compares to last year’s average yield of 1,731 lbs/ac. 
       There’s no question this sunflower crop looked excellent throughout the growing season. Disease problems developed in September and early October in the nonoil crop. Heavy snow and strong winds caused some crop loss during the mid-October freak blizzard.  North Dakota, where the heavy snow was centered, plants about 40% of the U.S. sunflower acres.  Almost none had been harvested prior to the storm.  No North Dakota corn had been harvested before the storm, and just 8% of the soybean crop had been harvested.
       The China problem has also continued to be a messy ordeal.  President Trump announced that an interim trade agreement had been reached on Friday, October 11.  Markets rallied sharply that day, including U.S. equity markets. 
       The problem that followed was that there was little or no clarity in the announced deal. Details were sparse, and China didn’t seem as optimistic about the potential agreement.  China wants another meeting before signing an interim agreement.  (Note:  This column was written on October 14.)
       The October USDA supply and demand estimates reduced the corn ending stocks forecast from 2.190 billion bushels in September to 1.929 billion bushels in the October report.  This was despite a slight yield increase and a 150 million-bushel cut in the export forecast. The reduction was due to a smaller September 1 corn stocks estimate than expected. A drop in the national yield average by six bu/ac, coupled with a 3.0 million acre cut in harvested acres (prevent plant) would reduce corn production by a billion bushels.  That would turn the corn market upside down.
       The October USDA supply and demand estimates reduced the soybean carryout from 640 million bushels in September to 460 million bushels in October.  Like corn, the September 1 soybean stocks number was smaller than expected.  Soybean ending supplies would drop by another 110 million bushels ifthe yield drops by 1.5 bu/ac. That would mean soybean ending supplies below 400 million bushels — which would make the entire oilseeds markets bullish. 
       Snow and rain across western Canada likely reduced Canada’s canola crop by at least two to three million metric tons. We don’t yet know the impact of this ugly harvest season on final sunflower yields and production.
       The last potentially bullish market factor is China. China has apparently pledged to purchase between $40 billion and $60 billion in agricultural products from the U.S.ifthis deal is signed.  The biggest agricultural trade year with China was $17 billion in 2017. The current USDA export projections for soybeans, corn and even wheat are too small if these numbers turn out to be any good at all.                                                                                    
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 for its use.
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