Two major events — ones the markets had been anticipating for months in the hopes that they would kick-start rallies — failed to deliver.
The first was the January series of U.S. Department of Agriculture (USDA) reports. They included the “final” 2019 corn, soybean and sunflower yield and production estimates, the WASDE (supply and demand) revisions, the December 1 quarterly stocks numbers and the initial winter wheat plantings estimate.
The second was the signing of the Phase One trade agreement with China.
It was hoped that all this news would be at least slightly positive to prices. Unfortunately, the initial market reaction to both events was negative.
None of the numbers within the series of USDA reports contained any bullish surprises. As a result of weather issues both at planting and harvest, there has been some amount of controversy over the harvested acreage and yield estimates. The big issue has been how many acres of corn and soybeans got planted and how many got harvested due to very late spring planting and the very wet and prolonged harvest. Even now, there is a significant amount of standing corn across areas of the Northern Plains.
The USDA’s production estimates made very minor downward adjustments in corn and soybean harvested acreage and increased the yield estimates. Corn production was increased by 31 million bushels, while the corn export forecast was reduced by 75 million bushels. U.S. corn exports continue to run nearly 50% behind last year. That’s because Brazil has been a very aggressive corn exporter.
The production estimates also included the “final” sunflower numbers for 2019. Here are the sunflower highlights:
The first estimate of 2020 winter wheat acres is for a total of 30.804 million acres. That compares to 31.159 a year ago. It includes 21.8 million acres of hard red winter, 5.64 million of soft red winter and 3.37 million of winter white. The USDA will release an updated total and state-by-state breakdown in the March 31 prospective plantings estimate.
- USDA estimated the 2019 sunflower production total at 1.94 billion lbs, down 8% from 2018. That included 1.75 billion lbs of oil-type sunflower and 197 million lbs of nonoil.
- The United States average yield per acre of 1,562 lbs decreased 169 lbs from 2018. Much of that decrease was the result of the extremely wet growing season and harvest weather that increased disease issues and field loss.
- Planted area, at 1.35 million acres, was 4% above the previous year. Area harvested increased 2% from 2018 to 1.24 million acres.
The other big deal that happened in January was the official signing of the Phase One trade agreement with China. The first trade tariffs in this “war” were put in place in July 2018. Phase One has been described as about 60% agriculture. It is supposed to result in China buying up to $40 billion a year in agriculture products over the next two years. That is a huge number, and there has been all sorts of speculation in recent weeks over the actual breakdown by commodity.
Rumors were that it would include as much as 180 million bushels of wheat and 300 million bushels of corn, plus large amounts of soybeans, sorghum, DDGs, pork, etc. The trade was expecting to see details of these amounts by specific commodities in the agreement. Unfortunately, none of those details were in the documents that were released.
That created a sigh of uncertainty, and markets traded sharply lower the day of the signing and the day following the signing. There is no confidence in the estimates of how much of each commodity China will purchase. Not to mention, no one knows when all this buying will begin. All of this, coupled with somewhat bearish USDA numbers, left markets in a negative posture.
The other question regarding the China trade deal is when — or even if — China’s imports from the U.S. will be factored into supply and demand forecasts by increasing export forecasts. That is unlikely to happened quickly unless the actual sales to China start to happen soon.
The next important USDA reports will be the March 31 prospective planting and quarterly grain stocks estimates. China’s actions in the U.S. export markets will be the most important price factor until those reports come out.
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.