Here is a brief summary with a few interesting slides from the recent USDA Ag Outlook Meeting, the full presentation of which is available HERE. The markets didn’t really move much yesterday and most of the action continues to hinge on South American weather forecasts, which we all know and understand. I’m sure next week will bring more volatility as the forecasts change. As I sit here today, I remain a longer-term bull of both corn and wheat. I am extremely respectful to the front-end of the soybean market and believe we could see another major leg higher. I am however, a bit more nervous about longer-term price appreciation, hence taking a more aggressive approach to my late-2018 and 2019 soybean marketing efforts. Have a great weekend…
CORN – 18/19 crop projected at 90 million planted acres, down slightly from last years 90.2 million. The yield will start at 174 bushels per acre vs. 176.6 last year and 174.6 bushels per acre the year before that. Ending stocks are forecast lower at 2.272 billion bushels on ethanol being bumped from 5.525 billion to 5.650 billion bushels. The crush was also adjusted higher from 1.950 billion to 1.980 billion. Interestingly exports were reduced from 2.050 down to 1.900. I personally believe U.S. exports could be pushed higher, not lower, which could potentially push ending stocks lower than their current forecast.
SOYBEANS – 18/19 crop projected at 90 million planted acres, down slightly from last years 90.1 million. The yield will start at 48.5 bushels per acre vs. 49.1 last year and 52 bushels per acre the year before that. Ending stocks are forecast lower at 460 million bushels on exports being bumped from 2.1 to 2.3 billion bushels. The crush was also adjusted higher from 1.950 billion to 1.980 billion. I personally believe planted soybean acres are estimated too low. I continue to hear more folks talking about more soybeans in the peripheral states.
WHEAT – 18/19 crop projected at 46.5 million planted acres, up slightly from last years 46.0 million. The yield is forecast at 47.4 bushels per acre vs. 46.3 and 52.7 bushels per acre the year before that. Ending stocks are forecast lower at 931 million bushels vs. the current 1.009 billion. Exports were once again lowered from 950 million down to 925 million bushels..
Production Climbing Prices Falling: Interesting to see both corn and soybean acres estimated at 90 million each. Did you know, since 1960, U.S. soybean production has increased more than +1,000%, while real soybean prices have fallen by -47%? During that same period, corn production has grown by more than +400% and prices have fallen by more than -60%. Once agin proof of technology being extremely deflationary, especially in a commoditized sector of the industry.
Trade: U.S. agriculture is very dependent on trade. 86.9% cotton, 52% rice, 50.1% sorghum, 47% soybean & 45.7% wheat are exported. China already accounts for 65% of the total trade in global soybeans. Interesting to note, the number of middle-class households in China will nearly double, approaching 370 million households by the year 2026. The number of middle-class households in India is expected to nearly triple by 2026.
Ag Profitability & Banking: Just what we’ve all been feeling! Less working capital… From my perspective, the decline in working capital, which has fallen by more than -65% since 2012, is booming more and more concerning.
Ag Survey & Subsidies: I thought it was sad to see only a 39.2% overall return rate for the 2017 Census of Agriculture. The darker the green the state is colored the more surveys completed. Illinois and Iowa looked to be the highest return rate at just over 49%. Darker greens are in the 40% range; lighter greens in the upper-30% range; brown tones are mid-30% and lower. Might be some irony in the following two slides?
Organic Continues to Grow: U.S. organic commodity sales in 2016 were up +23% from 2015, and more than double sales of 2011. Organic products are now available in nearly 3 of 4 conventional grocery stores, and often have substantial price premiums over conventional products