It has been an incredibly uneventful summer from a weather standpoint across North America. Corn, soybean and spring wheat crop condition ratings were high and held steady week after week. No condition ratings are published for sunflower.
The generally very good weather resulted in forecasts for record corn and soybean yields and production. That also means bigger ending supplies than estimated in previous supply and demand reports. The spring wheat crop will likely bring mixed results.
The August 12th USDA reports contained the first corn and soybean yield estimates based on actual surveys, test plot observations, etc. The market was anticipating the USDA would increase the corn and soybean yield estimates to record levels, and that is what they did. No sunflower estimates will be released until the October series of USDA reports.
The table below compares the corn, soybean and wheat yield and production information with the previous year.
August USDA U.S. Crop Production Estimates
(Yield in Bu/Acre, Production in Million Bushels)
| |
2019 |
2019 |
2020 |
2020 |
| |
Yield |
Production |
Yield |
Production |
| Corn |
167.4 |
13.617 |
181.8 |
15.278 |
| Soybeans |
47.4 |
3.552 |
53.3 |
4.425 |
| Spring Wheat |
48.2 |
522 |
--- |
--- |
| All Wheat |
37.2 |
1.920 |
36.7 |
1.838 |
These big production estimates resulted in increased ending supply estimates for the 2020/21 crop marketing year. The corn ending supply estimate was increased from 2.646 billion bushels in July to 2.756 billion in August. The soybean ending supply estimate was increased from 425 million bushels to 610 million bushels. The wheat ending supply estimate was reduced slightly from 942 million bushels in July to 925 million bushels in August.
The markets seem to get more complicated with more moving parts than ever before. We are still dealing with these primary market factors:
- Covid-19 and its impact on demand.
- China’s compliance with the Phase One trade agreement.
- World crop production.
Covid-19 has flared upward throughout this summer, with a number of states actually restricting sections of their economies instead of the expected increased opening of economic activity. Market analysts seem always to cite “demand concerns over Covid-19” as the reason markets are lower. The fact is, we’ve seen little evidence of consumption loss due to the virus. Looking at the USDA’s overall world supply and demand numbers continues to point to increased demand, not a reduction.
China’s compliance with the Phase One trade agreement is probably the most important issue affecting markets over the longer term. They agreed to purchase up to $40 billion in U.S. agricultural products each year of the agreement. They are far behind the pace necessary to reach that number in 2020. That $40 billion is a huge number. Products they will buy range from wheat, corn and soybeans to DDGs, pork poultry, etc. We have not seen any definitive list of the quantities of each product they will buy, but there have been a number of ranges of possibilities necessary to attain the dollar goal.
The numbers are big. For example, some analysts think the Chinese will need to buy more than 40 million metric tons of soybeans and up to 10 MMTs of corn and five MMTs of wheat to have a chance of getting to $40 billion. These purchase levels would surpass previous annual levels by a wide margin, including soybeans.
China’s pace of purchases accelerated sharply in mid-July with sales announcements in one week totaling 3.0 MMTs of corn and nearly 2.0 MMTs of soybeans. China continued its aggressive soybean purchase pace in August, and the Chinese have also purchased U.S. hard red winter wheat and hard red spring wheat — and, there have been rumors about purchases of soft red winter wheat. These purchases have minimal impact on prices because weather has been so good with no production threats across the U.S.
Markets seem more worried about the ongoing negative political banter between the U.S. and China that could derail the entire trade agreement. The latest issue is the crackdown by China in Hong Kong and the imposition of more U.S. sanctions because of the Hong Kong situation. The next question is: will there be a “Phase Two” agreement, or even talks?
Big U.S. crop production coupled with forecasts for record corn and soybean crops in Brazil in 2021 make the China deal extremely important to price direction.
* 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.