04/02/19 — There was news that despite additional losses in 2019, farmers will plant virtually all the acreage they did before, and prices swooned down on the March 29 acreage report. The stocks numbers were perhaps the most negative, and down the market went.
Friday we got the prospective planting survey results from March 1 surveys, with corn acreage 1.6 million acres higher than analysts expected, and up 3.7 million acres from last year (USDA was forecasting a 3 million acre hike in February). But that wasn’t the worst corn number as the stocks were 269 mb larger than expected. Combined, the 140 mb surprise in acreage plus 269 million in stocks was a 409 mb hike in corn carryout versus expectations overall — and that’s why we had a sharply lower corn market Friday. Soybean acreage was down 1.6 million acres from expectations (-4.6 million acres from last year), and with a 3 million bushel lower stocks number net we were looking at 83 mb smaller soy carryout that should have pushed soybeans 20c or more higher. However, soybeans followed corn down Friday before recovering most of those losses the following Monday. Wheat acreage also was 1.1 million acres smaller than expected (down 2 million from last year), but stocks were up 48 mb from expectations so that was a net 5 mb hike in total carryout levels — slightly bearish wheat due to the stocks number (like corn). So wheat prices went lower following corn, and the corn/wheat losses drug soybeans lower, too.
Probably the most important grain fundamental wasn’t the acreage report Friday, but the trade negotiations going on in Beijing between the U.S. and China, and this week in Washington starting Wednesday. Final negotiations are covering such topics as the cyber rules in China for cybersecurity, which are currently keeping U.S. tech firms from being a part of the Chinese market. The top trade negotiators are shooting to close a deal by the end of April. Mr. Liu He, China’s top negotiator, is set to come to Washington Wednesday of this week to continue the discussions. The obstacles to closing the deal are ways to enforce an agreement, the pace that current tariffs are phased out, and technology related matters like cybersecurity issues. China’s new cybersecurity law has hundreds of rules and standards governing products ranging from software to routers, switches, and firewalls that making it difficult for U.S. firms to operate there. Cloud computing is also a part of this discussion, with China making a proposal to make it more accessible to U.S. companies. We’ll see how this goes, but if China and the U.S. make an agreement by the end of April, all current projections of U.S. carryover even for 2018 crops could change dramatically. The demand for U.S. crops could also shift dramatically for 2019 crops, so the March planting report can change significantly due to weather and this trade agreement.
For the week last week, it was tough on grains with 23c losses in corn, 20c in soybeans, and 8c in May CBOT wheat. Weather forecasts are turning a bit wetter over the next seven days to more normal in the U.S., and then wetter again in the 8-14 day period to above normal precip. Temps will remain above normal in the western U.S., and normal in the eastern half the next 14 days. This is still not an optimal planting forecast, but isn’t super adverse, either. So some planting progress may begin in the next two weeks, but likely will still be below average due to the wet conditions the past fall and winter.
Its interesting to watch the markets and the price declines since the China-U.S. tariffs began last spring. The market seemed to know when it came to trade negotiations, it wouldn’t be fast! Even since Feb. 1 this year when the delay in the March 1 deadline for U.S.-China trade talks began, prices of May soybeans are down 61c, May corn down 31c (17c on acreage report day), and 65c wheat. Prices of all grains dropped due to reluctance to believe that trade negotiations will ever conclude. Now, the issues are more esoteric with cybersecurity the latest report on negotiations. Will they ever end?
Meanwhile, the March planting intentions confirmed that farmers will once again plant virtually everything even though they are losing money on most everything. So prices can go down, and they do. Meanwhile, crude oil is running to new recent highs — the highest price since November — while grains are basically at their lowest levels in a much longer period of time. The stock market is also at its highest price since November.
There is a move in Congress to try to pass an ag disaster bill, but many oppose it. So the battle rages on in Congress. There is no question ag is in a current profitability crisis. What to do about it is another question. Farmers don’t seem to want disaster bills; though, they’d rather just have a fair price. But with the current “cheap food” policy, farmers might be doomed to sell at low prices. A great farm policy is to produce just a little less than is demanded, and then prices would be bid up to see who gets to sleep with a full belly at night. That is the most profitable policy for farmers, but you can see why politicians wouldn’t support that policy.