Acre debates begin
Acreage debates are taking place a little earlier this year than most. There are many estimates circulating about what the U.S. will see for planted acreage this coming year. With the abundance of soybeans in the U.S., soybean acreage needs to give up production to other commodities.
New crop futures values of corn and soybeans are not swaying many decisions either way at current levels. Reports of poor yields on corn following corn acres in some areas coupled with increased input costs indicate values will need to be that much better to incentivize producers to switch acres.
Another factor that will affect acreage decisions this year are wheat values. The new crop July Minneapolis wheat futures have dropped recently and are at the lowest levels seen since July and only a few cents off their contract lows. With November 2019 soybean futures trading around $9.40, it is doubtful acreage will be switched, especially in the Dakotas.
China continues to be a major player in grain futures market action. Last Friday November 9th, China’s top diplomat indicated that they are committed to seeking mutually acceptable solutions to trade issues with the U.S. This comes ahead of the upcoming G20 summit where the Presidents of both countries could meet to work out trade negotiations. U.S. Secretary of State Pompeo has said he hopes to work with China on sanctions with Iran and China has said they are committed to working with the U.S. in non-confrontational ways.
African Swine Fever continues to plague pork production in China as the struggle to contain it continues. Pork imported from China has been found to contain the virus in Tokyo, Japan last week. While it did not pose a risk to Japanese pork production, it continues to raise consumer awareness and concern about the spread to neighboring countries.
As harvest is wrapping up in many areas, harvest pressure has diminished and basis has begun to narrow. Corn demand needs the pipeline to keep flowing during this time of year and it is not uncommon for basis narrowing to occur. This is especially true as farmers have put grain away and the calendar moves closer to the end of the year.
The market is slowing starting to focus on weather patterns in South America as planting season is in full swing in Brazil. Soybean planting pace in Brazil is now at a record 71 percent complete. Heavy rains in Argentina have erased extreme dryness seen in the previous growing season. Now excessive moisture is starting to become a concern as second crop soybeans are harvested there.
Export inspections for the week ending November 8th were within trades estimates for corn, soybeans and wheat. Corn and soybeans were near the high end of expectations coming in at 44.7 million bushels and 47.8 million bushels, respectively. The year to date total on corn is nearly double what it was a year ago. Wheat loadings totaled 12.6 million bu. which was on the light side of the range expected.
A lot of focus is being placed on the ethanol industry currently, crush margins continue to be pressured from many different reasons. The December ethanol futures contract is 30 cents off its mid-summer levels, natural gas prices have shot up from $2.90 cents to $4.40, crude oil values are down 25 percent in the past six weeks and corn basis has increased. With these headwinds, trade will be monitoring weekly ethanol production levels closely to see if production levels start to decline.
Despite reports of more plants idling and shutting down completely, ethanol production for the week ending November 9th only fell slightly from the prior week. 1.067 million barrels produced each day last week, down 1,000 barrels per day. Stocks jumped by a large 364,000 barrels and stand at 23.51 million.
Export sales for the week ending November 8th were all within trades expectations. Corn sales totaled 35.1 million bushels which was at the highest end of the range, but slightly below the needed amount. Soybean sales totaled 17.3 million bu, which was on the low end of estimates and 12 million shy of the needed amount. Wheat sales totaled 16.1, also on the low end and below the weekly needed amount.
Last week’s reduced corn yield by the USDA has gotten analysts attention. The USDA reduced corn yield by 1.8 bushels per acre. According to a recent FC Stone study, the last time the USDA reduced yield by 1.5 bpa or more in the November report was in 2006. The last six times the USDA reduced corn yield by 1.5 or greater in November, also saw reductions made into the January final report, by an average of 1.5 bpa. Unlike the corn, soybean reductions made in November were only reduced into the January report twice.
China is taking measures to decrease air pollution by increasing ethanol usage. They are aiming to mandate 10 percent ethanol blended with gasoline by 2020, an increase of 8 percent. A recent Bloomberg study stated this could hurt an already struggling gasoline sector for the next 2-3 years, as the rise of electric vehicles, bike sharing and ride services has slowed demand growth in that country substantially since 2016. The move is expected increase ethanol demand dramatically. Ethanol capacity is said to expand and import tariffs will remain in place to protect Chinese producers.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page