Weekly Market Review; Friday, March 29th, 2019

Prospective Plantings, Stocks Data Released

The long-awaited prospective plantings report was finally released last week. For the upcoming year, the USDA is projecting acres of 84.6 million on soybeans, 92.8 million on corn, and 45.7 million for soybeans. This was a greater number on corn than analysts were projecting, and lower numbers on soybeans and wheat. They are in line with what was released in the Ag Outlook Forum in February, however. This data was collected prior to the Midwest flooding though, and all are highly suspect.

The quarterly stocks data was also released, and was more in line with trade expectations. As of March 1st, the United States held 2.71 billion bu of soybeans, 8.6 billion bu of corn, and 1.6 billion bu of wheat in reserve. These were relatively close to what trade was anticipating. Compared to last year, this is nearly 600 million bu more soybeans, 290 million bu less corn, and 105 million bu more wheat.

The greatest issue for commodities at the present time is simply supply versus demand. While we have seen steady commodity demand this year, it has not been up to projected levels, and not nearly enough to keep reserves from building. This is not just on the domestic side, but from a world prospective as well.

The commodity suffering the most from this is soybeans. At the present rate of sales, yearly totals will fall 400 million bu short of estimates. There are hopes that the trade talks between China and the US will progress to a point where trade will resume, but these are starting to fade. The latest on these talks is that they will not resume until June. By then, the US will be past the point of the marketing year when old crop exports tend to take place. A greater concern for soybean demand is the cancellation of already booked sales.

We are also seeing concerns over wheat demand. At the present time the United States has only booked 66% of the total yearly sales that it is expected to make. This is a record low volume, with little time left in the old crop marketing year. The US is competitively priced on wheat in the global market, but the fact world supplies are so high there is little incentive for a buyer to come to us for needs. This is mainly due to lower freight costs from other origination points for buyers than the US.

While also depressed, demand for corn is getting less market attention. This is because the stocks to use ratio on corn is tighter than on soybeans or wheat. We have also seen a steadier demand base on corn, including a recent sale to China. This failed to receive much of a reaction though, as the sale was less than what had been expected from trade talks. China also left all GMO restrictions out of the sales contract which leads many analysts to believe the booking will eventually be cancelled all together.

One point that our export market has going for it is that eventually the US will become the most economical source for needs and we will see demand build.

Spring weather is becoming more of a market topic. While there is still plenty of time to get the crops planted, some long-range models indicate the wet pattern across the United States will continue. A few of these are calling for flooding to last for the next six to eight weeks. This would be a game changer for not only production, but acres as well. At the same time, we are seeing forecast models calling for El Nino conditions to impact this year’s growing season, which are historically associated with above trend yields. These two conflicting outlooks are preventing trade from adding any amount of risk premium to futures values.

When it comes to spring weather, the most attention at the present time is on wheat. This centers on North Dakota, where heavier than normal snow cover is being reported. This alone is likely to delay spring wheat seeding, and the possibility of flooding will only make the situation worse. This follows a fall where winter wheat seedings were the lowest in the past 110 years. There is also a concern over what kind of a stand the winter wheat crop will be when it emerges, and how much production might be lost.

The reaction to this news is being tempered by ample world wheat supplies and how any production loss in the United States can easily be made up for by other sources.

While the focus in the US market is on spring planting, in the global market this is on harvest, mainly in South America. The Brazilian soybean harvest is now 70% complete. Brazil is now the leading supplier of soybeans to the world market, even with a slightly less than expected crop size. Analysts in Brazil claim that drought has reduced the crop enough that exports will likely be affected as well. Some analysts believe Brazilian exports will be down 14% from a year ago.

When it comes to global soybean demand, all attention right now is on China. African Swine Fever has cut China’s pork production by a reported 40%. China, who is the world’s largest soybean importer, will likely reduce its soybean demand as a result. This could actually benefit the United States, as China has turned to pork imports rather than soybeans for feeding. China has already come to the United States for pork needs, which is greatly benefitting that market. Some economists believe it could take up to two years for China’s pork production to get back to normal from the ASF outbreak.

This commentary is the sole opinion of Karl Setzer. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl Setzer at 800.858.3738, extension 411, or at ksetzer@citizenselevator.com . You can also follow Karl on twitter; @ksetzergrains


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Karl Setzer Grain Commentary