Proposed budget calls for nearly 15 percent reduction

President Trump is proposing cuts to USDA’s Fiscal Year 2020 budget. The proposed budget makes a near 15 percent reduction, or $3.6 billion decrease cut, in discretionary spending from the 2019 estimate for USDA. For mandatory programs, USDA faces a $1.86 billion in cuts for fiscal year 2020.

Five percent increase in net cash income projected by USDA

USDA is forecasting a nearly five percent increase in net cash farm income. At $69 billion, net farm income is well below the $90 billion average seen since the year 2000. Meanwhile, farm debt is projected increase nearly four percent.

“The sector’s risk of insolvency is at the highest level since 2002, but we’re still well below the levels seen in the 1980s,” said USDA Deputy Chief Economist Warren Preston.

Working capital levels are expected to drop nearly 25 percent this year.

Land O’Lakes reports sales and earnings

For 2018, Land O’Lakes is reporting net sales of $14.9 billion and net earnings of $255 million. That’s compared to net sales of $13.7 billion and net earnings of $365 million in 2017. The Dairy Foods sector had strong performance, with convenience foods helping offset lower retail products and compressed margins on milk powders. Dollars in the Crop Inputs and Insights sector were lower. Overall, a total of $194 was returned to members.

Corn analysis

Corn closed the week $.05 3/4 higher. Last week, private exporters announced China had purchased 300,000 mts of US corn for the 2018/19 marketing year.

Weekly export inspections for corn came in at 31.3 mb, below trade expectations. Corn needs to average 43.1 mb each week to reach the USDA’s recently lowered 2.375 billion bushel export projection. Corn exports have fallen below the average “needed” pace in each of the last eight weeks. In the weekly EIA report, weekly ethanol production decreased by 1,000 bpd to 1,004,000 bpd, while the ethanol inventories increased by 700,000 barrels to 24.4 million barrels. Ethanol stocks rose last week to a new all-time record high for any week since EIA began reported weekly ethanol data in June 2010. Crude oil stocks decreased 9.6 mb vs. an expected increase of 1.8 mb. Heavy flooding in Nebraska and parts of Iowa and the Dakotas could significantly increase prevent planted acres.

Strategy and outlook

Producers should use options to re-own and manage risk. The downside risk appears limited due to weather issues with upside limited by much larger South American crops.

Soybeans analysis

Soybeans closed the week $.05 lower. Last week, private exporters did not report any sales.

Soybean inspections were at the lower end of trade expectations at 30.9 mb, which is the lowest in the last 10 weeks. Soybean inspections needs to average 32.0 mb each week through the end of August in order to reach the USDA’s current export. The lack of demand is starting to show up as South American product becomes more readily available. The slow demand trends will weigh on values. A wet spring should theoretically push more corn acres to soybeans.

Strategy and outlook

Producers should look to sell the carry for spring or summer months and use options to re-own and manage risk. Don’t store unpriced crops.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.