The long-awaited July supply and demand report has been released and did contain a few surprises. Corn yield was left unchanged from June, at 166 bushels per acre, and acres were upped to 91.7 million from last month’s 89.8 million.
This will give the United States a crop of 13.875 billion bushels, 195 million more than projected last month. Few changes were made to corn demand, giving us a new crop carryout estimate of 2.01 billion bushels. This is 335 million more than the June prediction, and above the range of trade expectations.
Updated soybean data gave us a 4.6 million-acre reduction to plantings and a 1 bushel per acre yield cut. This puts the national average soybean yield estimate at 48.5 bushels and a crop of 3.845 billion bushels.
We did see a slight reduction to demand, but a tightening of new-crop reserves is still expected. New-crop soybean ending stocks are now projected at 795 million bushels, compared to 1.045 billion estimated in June.
Few changes were made to the wheat balance sheets, but that grain received the most bullish reaction. Wheat ending stocks are now estimated at an even 1 billion bushels, down 72 million from last month.
The global numbers were mixed. World corn ending stocks for the 2019/20 marketing year are pegged at 198.9 million metric tons, up 8.4 million from June. The world soybean carryout number is 104.5 million metric tons, 8.2 million fewer than last month’s projection.
Global wheat carryout is now estimated at 286.5 million metric tons, down 7.8 million from June.
While commodity production is an issue in the U.S., this is not the case in the world market, especially on corn. Three of the world’s leading corn-producing countries – Brazil, Argentina, and Ukraine – are all expecting record crops this year.
It is currently believed that among these three sources they will add nearly 2 billion bushels of corn to the world supply this year. This will easily negate any loss to the U.S. crop. Brazil has already upped its corn export forecast for this coming year to 38 million metric tons; this compares to the country’s 31 million projection in March.
One area in which the U.S. is seeing solid demand is for beef and pork, although numbers do trail trade expectations. According to Census data, U.S. beef exports in May were up 11.8 percent from a year ago. During the month a record 63.2 million pounds of beef were exported to South Korea.
May’s pork exports were up roughly 1 percent from May 2018, with China taking 56.8 million pounds. This was the highest volume of pork exported to China in the past three years.
Even though China has bought some U.S. pork, more business may be coming. Trade is becoming increasingly optimistic that China will eventually import larger volumes of U.S. pork, even with tariffs in place. This is because of the loss in China’s domestic pork production from African swine fever (ASF), which now stands at 30 percent of its hog herd. Initially it was thought this loss would only total 16 percent.
Another country that may need imports of pork is Vietnam. ASF is spreading rapidly across Vietnam and wiping out large volumes of hogs there as well. Even if these buyers opt for other pork supplies, it will still create a void in the global market that the U.S. will be able to fill.
While talks are still taking place between the U.S. and China on trade issues, little progress has been made in recent weeks. This is a little concerning for trade, as hopes were that the meeting between the two sides at the G20 Summit would have brought more business. This is especially the case after China bought a large 20 million bushels of U.S. soybeans just prior to the talks.
China is again booking soybeans from South America, though, indicating the purchase was more of a “good faith” move than out of need. Many of the same issues continue to hinder a resolution to the dispute, mainly the tariffs the U.S. has in place on Chinese imports.
According to a survey conducted by Creighton University, ag lenders across the U.S. are seeing a rise in loan defaults. Lenders across 10 states claim that just over a quarter of them are seeing rising defaults and one-third expect to see defaults rise this year. A large 50 percent of lenders are seeing farmers exit the ag industry altogether.
The new-crop corn/soybean price ratio is again being noticed by trade. This ratio is holding close to 2:1, which is an indication of elevated corn plantings. This is in response to the poor corn crop that is expected this year and the need for more corn production next year.
There is a different way of looking at this, though, and it could be that the soy complex is trying to deter plantings with lower values. If this thought is correct, it could favor corn plantings without a rally in futures.
Karl Setzer is Commodity Market Analyst for AgriVisor. His market commentary can be found on Twitter via @ksetzergrains The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be a