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Hart: ‘Demand is not, and has not been the problem’

December 22, 2017
By KRISS NELSON - Farm News news editor (editor@farm-news.com) , Farm News

By KRISS NELSON

editor@farm-news.com

FORT DODGE - A series of Pro-Ag Outlook and Management seminars are being held throughout the state.

At one of those recent meetings, which was held at the Webster County Iowa State University Extension and Outreach office, Chad Hart, ISU Extension grain marketing economist, gave his thoughts on the 2018 crop market outlook.

Hart, who has been labeled "Dr. Doom," a name he has earned from not always giving reports on the best news in agriculture, told the group of producers and agri-business professionals to not expect much change from 2017 to 2018.

"I am a broken record and here is the problem," he said. "We are in the same situation we were in this time last year, which was the same situation we were in the year before that and the even the year before that."

On a positive note, Hart said there is a good demand for products.

"We have almost record demand," he said. "But right now, that is getting beat by larger supplies and that has been true since 2014 and 2017 just continues that."

Next year might continue that trend.

What is happening?

Hart said producers continue to see acres concentrate on corn and soybeans.

"That's what is creating the large supplies," he said. "That's what is overwhelming the demand and that's why we continue to have low prices today."

Hart said demand is set up to pull prices higher. The last couple of years, the futures market is ready to go higher.

"It makes a run at it every summer," he said. "What we find is, once we hit late summer/early fall, we see how big the crop is and we compare it to the strong demand we got, and we see where we have a few too many bushels to sell."

On the feed side, Hart said when he looks at that demand, it has been building over time.

"The livestock industry is seeing expansion with better prices going in to 2018," he said. "It's almost the opposite of what the crop side is experiencing right now, and I am looking for somewhere of a 2 to 4 percent growth in our livestock industry over the next year, which means feed demand should continue to chug here."

On the ethanol side of the industry, the demand for that also continues to rise.

"As we see more people driving a little more, we are seeing more E15 pumps out there and that is promoting the biofuel industry and that continues to grow," he said. "Our two big sources on the corn side are moving in the right direction. Demand is not, and has not, been the problem."

If there is a weak side in the demand sector right now, that would be exports, according to Hart.

"They are off because we're not the only ones producing this corn," he said. "When we look at worldwide, we are basically sitting on a world corn and soybean glut. Right now we are facing a lot more competition out there on the worldwide marketplace."

Hart said there is 14.5 billion bushels worth of demand.

"That's incredible," he said. "But when you're producing 14 to 15 billion bushels, it gets a little overwhelming and that's why we continue to see markets continue to slide."

Soybeans

Hart said it's not just corn where this is happening.

"The reason I am a broken record is, it doesn't matter what market you look at," he said.

With soybeans, Hart said, we have the same tale.

"What you have here is, demand side-wise, we are looking at record demand," he said. "In fact, the last four years in a row, we see that demand build and grow, but the problem is we continue to see supplies that just slightly exceed it."

Hart said, when looking forward into 2018, those in the ag industry look at international trade for soybeans.

"And we need every market we can grab ahold of due to the surplus market," he added.

The international marketplace brings some of the biggest swings in crop demand.

As he looks into 2018, Hart is trying to figure out what farmers are going to do with another 180 million acres of corn and soybeans.

"I have my nickname, 'Dr. Doom,' for a reason," he said. "And I get to keep it at least another year, because what I am seeing is our productivity continues to exceed our ability to grow what has been a fantastic demand."

What can be done to fix this?

Hart said farmers and producers can get things to slow down, sort of by choice.

"Right now, I've only got one scenario to pitch to you with any sort of confidence, and it would be this: I am looking at these crops, looking for some crop to steal acres away from corn and soybeans," he said. "It's specifically, I want them to take out the Great Plains or the Southeast, so I only have two candidates to look at. I need wheat or I need cotton to pick up some land."

He added that he would argue too many cotton gins have disappeared for acres to be put into cotton, so realistically it has to be wheat.

"There is one area that looks like it could potentially come up short this winter, and if it does, it could drive prices high enough to induce the guys in the Dakotas to move some acres into that spring wheat," he said.

Hart added that, when he looks at food quality, he said it's one of the few areas where he sees a possible deficiency.

"If that happens, that should promote spring wheat prices up and I should get some acres to move out of North and South Dakota and that may be just enough to do it," he said.

The reason Hart thinks this way is because, when he looks at a state like North Dakota, they aren't traditionally a large corn or soybean producing state. However, North Dakota was the fourth-highest state in terms of soybean production this year, according to Hart.

"If we could get some of those to move back to wheat, it changes the dynamics here," he said. "It would allow that demand to catch up to supplies and allow prices to improve."

But he is unsure just how likely that scenario is.

He said farmers facing competition in the United States with other areas adding to corn and soybean acres aren't alone; it's an issue that's happening worldwide.

"I have watched the world's wheat belt shrink and the world's corn and soybean belts grow to fill that," he said. "This means we are facing much more competition when I look at the world's marketplace. We still produce a third of the world's corn, but the idea is we have a lot more sellers out there participating in the marketplace."

"It's not just Brazil and Argentina anymore," Hart added. "It's places like the Ukraine and South Africa, when they can. There are a lot of places to buy corn from now and that is really beginning to bite us when I look at our export picture."

Right now, the United States is not the best place to buy corn from, because, according to Hart, there are cheaper options available.

He added that if there is anything that has helped the soybean market fare a little better, it's the strength of international demand and specifically, China.

"When you look at China, they don't produce a lot of beans, but they sure do import them," he said.

Right now, however, he feels the export numbers recently reported were disappointing.

"We are definitely facing some challenges internationally," he said. "The markets have gotten used to this idea that China is going to grow. They're going to surprise us one week out of the year. Blow it out of the water and make it a market export year."

That could be helpful with the soybean exports, but not so much for corn.

"Whereas with corn, there's not that one buyer that can do that for us," he said. "So we're seeing that pressure throughout."

Hart said livestock could see a marketable 2018.

"It could be a good year on the meat side as well," he said. "The U.S. is going to produce 100 billion pounds of meat this year. We've never done that before."

A lot of this meat will be exported.

Hart said the USDA is predicting 15 to 16 percent of the meat produced in the U.S. will be going somewhere else.

He added the USDA is looking at a 3 percent rise in production this year and beef exports to rise 10 percent higher this year.

Pork production is forecasted to see a 2 to 3 percent growth with pork exports, rising 6 to 8 percent.

"Right now, it's the international marketplace that is driving the growth for our livestock," he said.

 
 

 

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