The Rural Voice, 2019-03, Page 68 Recently there have been three
ongoing themes that have been
entering discussions about grain
prices and commodities in general.
These are the U.S. government
shutdown, the China / U.S. trade
negotiations and U.S. interest rates.
Each one of these issues brings an
element of uncertainty to the
marketplace. Uncertainty can bring a
lack of market participation and a
generally quiet, low volatility market.
The longest U.S. government
shutdown in history has now come
and gone and the USDA is again
reporting market data. On February 8
they released various crop data
reports including production and
supply and demand numbers. With
the release of this data the market
received clarity and measurable
information in regards to various
U.S. crops. Currently in the news
headlines, there are reports that the
U.S. government may again be shut
down due to a lack of co-operation
between partisan law makers. So
while today we again have market
data from the USDA, this may not be
the situation into the future.
The USDA prospective planting
report is to be released March 29.
Hopefully this report is not delayed
as market direction is likely to be tied
to the planting intentions of the U.S.
farmer.
Into the 2019/2020 crop season
the soybean balance sheet shows
large and likely growing inventories.
The key driver in maintaining or
growing this surplus will be U.S.
planted acres. Initial U.S. soy
plantings into this upcoming season
were predicted at 82.5 million acres,
down about 6.5 million acres from
this past year. Currently market
participants are not expecting this
dramatic of an acreage reduction in
soys and expect planted acreage to be
more towards the 84 to 86 million
acre range. If we assume these larger
acreage estimates to be correct we
will see ending stocks increase year
over year, potentially reaching over
one-billion bushels, the largest
carryout in history. The increase in
ending stocks between 84 million
and 86 million planted acres is a
difference of 100 million bushels. To
put this difference in perspective and
to demonstrate the vastness of this
surplus, consider this: in 2013/2014
the total ending stocks were 92
million bushels. Needless to say with
ending stocks approaching or
exceeding one billion bushels it is
difficult to envision higher prices for
beans.
Adding to the negative outlook for
beans is increasing south American
production. While the Brazilian crop
estimate has been lowered recently,
the combined soy production in
Brazil and Argentina is about 13.5
million tonnes higher than last year.
Corn, contrary to beans, has a
friendlier pricing outlook potential.
Therefore we may see corn prices
rally to try and buy the acres that
beans will need to sell. Heading into
the February 8 report, many market
watchers expected the USDA to drop
the 2018 crop corn yields.
As expected the USDA did drop
final corn yields from 178.9 bushels
per acre to 176.4 bushels per acre.
China’s purchases continue to be an
unknown, but there is much
speculation that China could
purchase five to eight million metric
tonnes of U.S. corn and 300 million
gallons of ethanol. If these purchases
do happen, their combined effect
would be a reduction of about 350
million bushels of corn from the U.S.
ending stocks. Not only would this
help firm corn prices, but it would
also help alleviate the oversupply in
the ethanol market. Ethanol prices
are trading at the lowest value in a
decade, as the industry is
oversupplying the marketplace. In
2012 the U.S. produced 13.2 billion
gallons of ethanol; comparatively
they produced 16.1 billion gallons in
2018. Overall the corn market has
enough opportunities and production
risks ahead that it may need to price
in a weather premium into the spring.
The China / U.S. trade dispute is
ongoing and markets seem to follow
the headlines closely. At times there
are indications that a trade deal is
close and at other times there are
reports that a trade deal is far away.
At this stage, the whole situation is
controlled by high level negotiators
and their success or lack thereof will
affect markets. March 1 is the U.S.
imposed deadline for a trade deal
before additional tariff levels
increase. On this date U.S. tariffs on
about $200 billion dollars of
imported Chinese goods will increase
from 10 per cent to 25 per cent.
The U.S. President has called this
a hard deadline, but as we see this
date approach he has stated publicly
that he could roll the deadline if a
deal is imminent. At the end of the
day markets will likely rise on a deal
and fall if no deal is reached. With
the no-deal scenario, commodity
prices should see deflationary
pressures due to a lack of markets.
Generally, it seems most are pricing
in optimism that a trade deal will be
reached.
U.S. interest rates have been
viewed as generally hawkish,
meaning the market direction has
been for rates to become normalized
at higher rates. Recently with the
uncertainty in trade deals, the drop in
equity markets and a general lack of
inflation, some of this expectation
has been scaled back. Various
members of the U.S. federal reserve
have stated that things such as pauses
in rate hikes could last for several
months and that there is not much
inflation in the U.S. today. ◊
64 The Rural Voice
Bean stocks
could exceed one
billion bushels
Scott Krakar is
a Grain
Merchandiser
with LAC Inc.,
Hyde Park,
519-473-9333
Markets
The deadline
for the
April 2019 issue of
The Rural Voice
is
March 6, 2019