FAO Projection for 2019 U.S. Corn Crop at 12.99 billion bu (330 mmt) + World Wheat S-D

Here is an article from the Foreign Agricultural Service regard their projections for the size of the 2019 U.S. corn crop.  They project a crop of 330 mmt or 12.99 billion bushels.

http://www.fao.org/worldfoodsituation/csdb/en/?utm_source=Ag+Insider+Subscribers&utm_campaign=a412282389-EMAIL_CAMPAIGN_2019_06_06_08_45_COPY_01&utm_medium=email&utm_term=0_b0e8c666dd-a412282389-120343085

Diminishing maize production prospects in the United States dampen the global cereal production outlook this year

Release date: 06/06/2019

FAO’s latest forecast for world cereal production in 2019 points to an increase of 1.2 percent from 2018, to 2 685 million tonnes.

However, the year-on-year expansion is now much less significant than earlier predicted, as global maize production is now seen to fall in 2019, largely because of sharp downward revisions since the previous report concerning maize production prospects in the United States.

Due to prolonged excessive wet conditions resulting in major delays in crop plantings, this year’s maize production in the United States is now pegged at 330 million tonnes, down 45 million tonnes from FAO’s first production forecast published in May and almost 10 percent (36 million tonnes) short of last year’s level.

The recent USDA crop progress report pointed to a sharply reduced planted area of only 58 percent of planting intentions as of 26 May, well below the 5-year average level of 90 percent and the slowest pace ever recorded.  (Note: this has been updated to 67% planted as of June 2, 2019 – down from the recent 5 year average of 96%.  Daniel O’Brien, Extension Agricultural Economist, Kansas State University)

Most of the expected rebound in global cereal production in 2019 is attributed to expected expansions in wheat and barley production, with year-on-year increases of 5.3 percent and 5.8 percent, respectively. Total rice production is likely to remain close to last year’s record level as expectations of area-driven expansions in Asia could offset foreseen contractions in most other regions, triggered by inclement weather and prospects of reduced profit margins.

World cereal utilization in 2019/20 is forecast to reach 2 707 million tonnes, down 15.5 million tonnes, or 0.6 percent, from the May forecast but still 1 percent (26 million tonnes) higher than in 2018/19. Most of this month’s downward adjustment again concerns the United States, where, because of deteriorating production prospects, total domestic utilization of maize is seen to fall below the 2018/19 level. Following the revision for the United States, world utilization of coarse grains in 2019/20 is now anticipated to reach 1 434 million tonnes, down 0.9 percent from the previous forecast but 0.7 percent higher than in 2018/19. Global wheat utilization is expected to grow by 1.2 percent, reaching 755 million tonnes, while that of rice is predicted to reach 518 million tonnes, 1.4 percent higher than in 2018/19.

Based on the latest production and utilization forecasts, world cereal stocks could decline by as much as 26 million tonnes, or 3 percent, in the new season to a four-year low of 830 million tonnes. This figure is around 18 million tonnes, or 2 percent, below the FAO’s May forecast. The sharp month-on-month downward revision is mostly associated with maize, whereas the forecasts for wheat and rice inventories have been raised slightly since the previous report. The projected fall in cereal stocks would result in a drop in the global cereal stock-to-use ratio to just below 30 percent, which still points to a relatively comfortable supply level.

Globally, coarse grain inventories are seen heading towards a second consecutive annual decline in 2019/20, falling by 9 percent to just over 369 million tonnes, the lowest level since 2014/15. By contrast, total wheat stocks could expand by 4.6 percent year-on-year and approach a near-record level of 281 million tonnes. The increase of 1 percent in wheat stocks since May reflects upward adjustments made for the EU and the United States, outweighing downward revisions in Australia and the Russian Federation.  World rice stocks at the close of 2019/20 are still envisaged to fall slightly (0.9 percent) from their record opening levels, to 179 million tonnes, despite some upward revisions to forecasts for the United States and Viet Nam.

World trade in cereals in 2019/20 is forecast at around 414 million tonnes, up 1.2 million tonnes, or 0.3 percent, from the previous forecast and nearly 6 million tonnes, or 1.4 percent, higher than the estimated total shipments of cereals in 2018/19. Most of the predicted expansion in world cereal trade is associated with greater wheat and rice trade, while trade in coarse grains, most notably maize, is expected to fall below the 2018/19 level, mainly on expectations of reduced imports by the EU and a sharp reduction in exports by the United States. By contrast, wheat trade is predicted to rebound by 3.3 percent from the 2018/19 reduced level, driven by stronger import demand by several countries, especially in Africa and Asia, and supported by the expectation of large export availabilities in the Black Sea region and the EU. World rice trade, on the other hand, is likely to contract by 3.5 percent in 2019 before a possible rebound in 2020 on expectation of greater purchases by several countries in Africa.

Updated Prevented Planting Decisions & Related Government Payments Info (KSU Ag Economics)

An Update on Prevented Planting Decisions and Related Government Payments

Monte Vandeveer (montev@ksu.edu) – K‐State Department of Ag Economics 

Daniel O’Brien (dobrien@ksu.edu) – K‐State Department of Ag Economics

Address of Article on the KSU AgManager Website:

http://www.agmanager.info/crop-insurance/risk-management-strategies

May 2019

 

     Last week we posted an article on KSU’s AgManager.info website which discussed Prevented Planting rules and options for producers facing wet planting conditions for their insured corn crop. A number of new developments, particularly the May 23rd announcement of additional Market Facilitation Program payments, call for an updated discussion of farmer options.

Prevented Planting Dates and Deadlines

     To review, many Kansas producers who insured their intended 2019 corn acres are nearing or already past the “Final Planting Date” (FPD) deadline, which marks the latest date for which they can plant their corn crop and still obtain the full level of crop insurance coverage. The FPD was May 15 for southeast Kansas, May 25 for central and northeast Kansas, and May 31 for western Kansas. Refer again to the map in last week’s article to see which zone includes your county.

     Once the FPD passes, producers enter what is called the “Late Planting Period” (LPP), during which corn may still be planted, but the level of insurance coverage will decline day by day. In particular, the production guarantee (= APH yield x % guarantee level) will decline 1 percent for each day after the FPD that a particular acre gets planted.

     An example: consider a non‐irrigated corn producer who has an APH yield of 120 bushels per acre and has chosen the 75% coverage level. His/her production guarantee for acres planted up through the FPD is 90 bushels per acre (= 120 bu/a APH x 75% coverage). For acres planted, say, 10 days into the LPP, the production guarantee is reduced by 10 percent (= 90 bu/a x 90% = 81 bu/a).

    Producers who DO plant corn during the LPP must keep a running tally of which acres are planted day by day, since each day’s planted acreage will have a different production guarantee.

     For corn in Kansas, the LPP extends another 20 days after the FPD. This means the final day of the LPP is June 4 for southeast Kansas, June 14 for central and northeast Kansas, and June 20 for western Kansas. If insurable causes of loss continue to delay planting past the LPP, corn may still be planted and insured after the LPP ends. Acres planted at this point would receive a production guarantee of 55 percent of the original APH yield. Our example producer above would thus have a production guarantee of 120 bu/a x 55% = 66 bu/a.

Announcement of Market Facilitation Program payments

     On May 23, 2019, the Trump Administration announced it would provide additional Market Facilitation Program (MFP) payments for agricultural producers affected by lost markets in the ongoing trade disputes with China and other countries. These direct payments to farmers are expected to total $14.5 billion dollars and will be provided for producers of more than 20 covered commodities. Many details have yet to be released, but the May 23 announcement did include some important bits of information.

     Most importantly, affected producers will receive one per‐acre payment based on a single county rate, rather than separate rates by crop as done under the 2018 MFP payments. This single county rate will be based on planting patterns of the affected crops in the county, reflecting the mix of crops seen there. The USDA statement points out that, those per acre payments are not dependent on which of those crops are planted in 2019, and therefore will not distort planting decisions. Moreover, total payment‐eligible plantings cannot exceed total 2018 plantings.”

     A crucial change in the 2019 approach is the use of a single payment rate for a county, rather than the per‐bushel payments on actual crop production used in 2018. The 2018 program provided $1.65/bu for soybeans, $0.86/bu for grain sorghum, $0.14/bu for wheat, and $0.01/bu for corn, based on bushels actually produced in that crop year. One of USDA’s goals in 2019 clearly was to not favor planting of one crop over another.

     In our article last week, we assumed an MFP payment would be based on the 2018 approach, where soybeans and grain sorghum might receive much larger payments than corn. Those calculations indicated that an MFP soybean payment of about $1.50/bu (slightly less than the 2018 payment rate of $1.65/bu) could be enough to tilt the planting decision toward soybeans. However, the single payment rate approach for 2019 payments should not favor the planting of one crop over another.

     But it must be noted that the MFP payments will still require actual 2019 planting. That is, acres which do not eventually get planted to any crop will not be eligible for the MFP payment. This favors the planting of something (corn, soybeans, grain sorghum, or some other eligible crop) over nothing.

     Planting nothing would allow the insured producer to collect the full corn PP payment from insurance, which should equal 55% of the original production guarantee. For our example farmer with a 120 bu/a APH yield, a 75% coverage level, and this year’s Projected Price of $4.00/bu, the full corn PP payment would come to:    

120 𝑏𝑢/acre    x    $4.00/bu   𝑥 75% 𝑐𝑜𝑣𝑒𝑟𝑎𝑔𝑒   𝑥   55% 𝑃𝑃 𝑟𝑎𝑡𝑒   =    $198 𝑝𝑒𝑟 𝑎𝑐𝑟𝑒

     In our examples from last week’s article, an MFP payment of about $30/acre could tip the decision toward planting a late corn crop over taking the full corn PP payment for Kansas producers.

     Yet another complication is the prospect for disaster aid for agriculture as part of a larger disaster relief package making its way through Congress. On May 23rd, the Senate passed a disaster aid package aimed mainly at victims of Hurricanes Michael and Florence, but also covering a variety of agricultural losses, including a specific provision for “crops prevented from planting in 2019.” See a farmdoc article from the University of Illinois for more details. While press reports indicate President Trump would sign the package into law if it clears Congress, it has been delayed in the House of Representatives (as of May 28).

     Some see these disaster payments as a way to assist producers who will never be able to plant anything in 2019 – that is, for the places where wet conditions persist through the entire planting season. One rationale for these additional payments is that providing MFP payments only on planted acres penalizes those producers who were unable to plant through no fault of their own. The counter‐ argument, however, is that these disaster payments could create another incentive not to plant anything in a year when corn acres could end up desperately short. About $3 billion were appropriated for agricultural losses in the May 23 Senate version of the disaster aid bill, but it is unclear how that amount might be spread over the various affected crops and regions, should the bill finally pass the House.

Effect of late & prevented plantings & effects on markets & prices

     A final factor to consider is the effect of all the late planting concerns on market prices. One would expect both total planted corn acres and actual corn yields to decline in the aggregate, but the extent of these changes is of course still guesswork. A farmdoc article examines the potential effect of fewer acres and lower yields for corn prices. It speculates that as many as 35 million acres of corn may remain unplanted as of the May 28 crop progress report, and traces this effect through the rest of the market “balance sheet” (acres, yields, exports, other usage, final stocks, etc). 

     See a similar analysis from Kansas State University on KSU AgManager.info titled       “U.S. Corn Market Outlook in Late-May 2019 – Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20″ 

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter)

     In our Kansas planting decision, the role of rising market prices for corn is to raise the value of those bushels that do get produced. A rising market value of expected actual corn production crops would tend to favor late planting of corn relative to no planting at all.

     Again, producers are encouraged to develop their own calculations, based on their own expected yields, costs, etc. Last week’s article provides examples that could be a useful starting point.

     Producers are also reminded to keep in close contact with their crop insurance agents as they evaluate options, to be sure they remain in compliance with their insurance policies and to discuss the alternatives.

*****

For more information about this publication and others, visit AgManager.info.

K‐State Agricultural Economics | 342 Waters Hall, Manhattan, KS 66506‐4011 | 785.532.1504

www.ageconomics.k‐state.edu

Copyright 2019: AgManager.info and K‐State Department of Agricultural Economics

KSU Corn Market Outlook in Late-May 2019: ‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

An analysis of Corn Market Outlook in Late-2019 for “new crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on May 10, 2019, with info from the USDA NASS Crop Progress reports on May 26, 2019

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is a summary of the article on “Corn Market Outlook in Late-May 2019″

**************

U.S. Corn Market Outlook in Late-May 2019

‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

May 29, 2019

 

1) The U.S. Corn Market Situation in Spring 2019

The serious and prolonged spring planting season problems during April-May 2019 for U.S. corn producers are leading to a sharp reduction in 2019 U.S. corn production prospects.  The likelihood of a U.S. corn production shortfall in year 2019 is bring about a classic “short crop” marketing year for U.S. corn markets in “new crop” MY 2019/20. The last major “short crop” for U.S. corn production occurred seven (7) years ago in year 2012 due to excessive summer heat.    

Concerns about delayed plantings or even the potential inability to plant corn or other crops this year have driven corn futures sharply higher in recent weeks.   “Old crop” JULY 2019 Corn futures prices have increased from a low of $3.43 /bushel on May 13th to a high of $4.38 on May 29th before closing at $4.18 ¾ that same day.  Similarly, “new crop” DEC 2019 Corn futures prices have increased from a low of $3.63 ¾ /bushel on May 13th to a high of $4.54 on May 29th before closing at $4.35 ¾ that same day (Figures 1a-b-c, & 2a-b).   With this rally in corn futures, managed money (specs) who had been holding record short or bearish positions have begun to buy back their short futures positions and instead build up the long or buy side of trade portfolios (Figures 3a-b-c-d).

The U.S. government is also planning to provide a second round of Market Facilitation Payments (MFPs) to U.S. crop producers, with the stipulation that crops have to be actually planted in year 2019 to collect these MFP funds.  The longer into June 2019 these U.S. corn planting delays go, the more difficult it may be for U.S. corn producers to keep with their original plans to plant corn this year, and not switch to other shorter season cropping options such as soybeans and grain sorghum.   

It is an oversimplification to say that the direction of the U.S. corn market for the remainder of “current” MY 2018/19 (ending August 31st) and the start of “new crop” MY 2019/20 (starting September 1st) will depend largely on the amount of U.S. corn acres planted over the coming few weeks through June 2019.  During that period U.S. farmers will likely be “under duress” as they make what may be difficult late season planting decisions.

*****

2) Status of Delayed U.S. Corn Plantings Through May 26th

The U.S. Corn Belt states that have been hardest hit by wet weather, flooding and planting delays so far in 2019 are Illinois, Indiana, Michigan, Ohio, South Dakota and Wisconsin (Tables 2a-b).  Significant wet soil conditions and planting delays have also occurred in Iowa, Kansas, Minnesota, Missouri, Nebraska, and Pennsylvania.   In these are other states many U.S. farmers who have not yet been able to plant all or part of their 2019 corn acreage are considering either late plantings of corn, switching to alternative shorter season crops such as soybeans, or possibly using Prevented Planting options from the USDA Farm Service Agency.

The USDA reported that 58% of the 2019 corn crop in the 18 major states had been planted as of May 26th in its latest USDA NASS Weekly Crop Progress report (Table 2a).  In these top 18 states this amounts to 49,131,600 acres planted out of 85,350,00 acres forecast in the March 28th USDA NASS Prospective Plantings report

Extended to the entire U.S., 58% planted on 5/26/2019 would equal 53,819,360 acres planted out of the USDA Prospective Plantings forecast for the U.S. of 92,792,000 acres of corn in year 2019.   Average corn plantings in the 18 major states on May 26th over the 5-year 2014-2018 period are 90%, with 5/26/2019 corn plantings being 32% and 27,844,900 acres behind in the 18 states and an estimated 29,693,440 acres behind in the U.S. in total.

*****

3) 2019 U.S. Corn Production Based on the May 26thS. Planted Acres Estimate

With only 58% or an estimated 53.8 million acres of U.S. corn planted to date, production prospects for the 2019 U.S. corn crop based on what is actually planted so far are down considerably.  In the USDA May 10, 2019 World Agricultural Supply and Demand Estimates (WASDE) report, forecast 2019 corn production in the U.S. to be 15.030 billion bushels (Tables 1a, 1b, & 2b). 

 This is based on the May 26th estimate of 58% of U.S. corn planted – amounting to 53.8 million acres (ma) planted of the 92.792 ma originally intended.  Of these 53.8 ma now planted, it is estimated that 49.460 ma would be harvested (equaling latest 3-year average harvested-to-planted in the top 18 corn producing states), with a 2019 U.S. average corn yield of 175 bu/ac, and that estimated corn production would equal 8.655 billion bushels (bb) (Table 2b). 

This estimate of 2019 U.S. corn production prospects to date can be criticized for several reasons. 

First, it is likely based on too high of an estimate of % harvested-to-planted acres due to flooding and excessive moisture – having been set equal to the most recent 2016-2018 3-year average. 

Second, it can also be criticized for having 2019 U.S. corn average yields set too high at 175 bu/acre.  With delayed plantings and excessively we soils it may be more prudent to consider an 8 bu/acre lower U.S. corn yield market of 167 bu/acre.  At 167 bu/ac yields, 2019 U.S. corn production on 53.819 ma planted and 49.460 ma harvested would be 8.260 bb – down substantially from the USDA’s May 10th WASDE projection of 15.030 bb. 

Third, these early projections for 2019 of U.S. corn planted acres of 53.819 ma, and of 8.260 bb in 2019 U.S. corn production do not account for the progress that will continue to be made in U.S. corn plantings from May 26th through the month of June.  In the “new crop” MY 2019/20 U.S. corn supply-demand and price projections by Kansas State University that follow in Table 1b, it is assumed that final 2019 U.S. corn planted acreage is either 82.792 ma or 77.792 ma.

*****

4) Prospects for Final 2019 U.S. Corn Planted & Harvested Acres

It is assumed in the following projections by Kansas State University Extension Agricultural Economist Daniel O’Brien that substantial amounts of additional U.S. corn acreage will be planted from now through June 2019 (Table 1b).  In this analysis it is assumed that these additional plantings will leave final U.S. corn planted acreage down 10-15 ma below the USDA’s Prospective Plantings report forecast on 3/29/2019 of 92.792 ma, but still up 24-29 ma from levels represented in the May 26th planting progress estimates.

  • U.S. Corn Planted Acreage Scenarios #1 & #2: “Down 10 ma 2019 U.S. Corn Plantings”:

As shown in Table 1b, IF 82.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 10 ma from initial USDA projections of 92.792 ma in the March 29th USDA Prospective Plantings report.  However, they would also represent an additional 28.973 ma yet to be planted in year 2019 from May 26th levels. 

Due to wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast to be 88.0%, just above the recent low of 87.9% in year 2002. Harvested acreage estimated to be 72.857 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

  • S. Corn Planted Acreage Scenarios #3 & #4: “Down 15 ma 2019 U.S. Corn Plantings”:

Also shown in Table 1b, IF 77.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 15 ma from initial USDA projections of 92.792 ma in the March 29th Prospective Plantings report.  However, they would also represent an additional 23.973 ma yet to be planted in year 2019 from May 26th levels. 

Also due to the prevalent wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast at 88.0%, with harvested acreage estimated to be 68.457 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

*****

5) Prospects for U.S. Corn Supply-Demand & Prices in “New Crop” MY 2019/20

Given the KSU 2019 U.S. corn reduced planted and harvested acre projections in Table 1b, projected 2019 U.S. corn production is substantially lower than the USDA’s May 10th WASDE forecast of 15.030 bb.  For the “new crop” 2019/20 marketing year to begin on September 1, 2019, this leads to substantially reduced U.S. corn supplies, significant rationing of U.S. corn usage and tightening of ending stocks and stocks-to-use and much higher U.S. corn prices.  The first scenario represents the USDA projection for “new crop” MY 2019/20 from the May 10, 2019 WASDE report.

Alternative scenarios for 2019 U.S. corn acreage and yields are presented in Figures 5 & 6, with varying 2019 U.S. corn production scenarios in Figure 7.  Alternative U.S. corn ending stocks-to-use scenarios for “new crop” MY 2019/20 are presented in Figures 12-a-b, while the relationship that has existed between U.S. corn percent (%) ending stocks-to-use and U.S. Average Corn prices is shown in Figure 13

Scenario A. USDA May 2019 WASDE Forecast for “New Crop” MY 2019/20 – 0% Probability:

Planted Acres                                     92.792 million acres (ma)

Harvested Acres                                  85.400 ma

% Harvested-to-Planted                      92.0%

U.S. Average Corn Yield                       176 bu/ac

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production                15.030 bb

Imports                                                  0.035 bb

Total U.S. Corn Supply                       17.160 bb

Ethanol for Fuel Use                            5.500 bb

Food & Industrial Use                            1.435 bb

Seed Use                                                0.030 bb

Exports                                                    2.275 bb

Feed & Residual Use                               5.450 bb

Total U.S. Corn Use                             14.675 bb

Ending Stocks                                          2.485 bb

% Ending Stocks-to-Use                       16.93%

U.S. Corn Season Avg. Farm Price           $3.30 /bu

Note: With the planting problems that have occurred in the U.S. in April-May 2019, the May 10th WASDE market scenario for “new crop” MY 2019/20 has virtually no likelihood of occurring.

 

Scenario #1MY 2019/20-KSU: Less 10 mln ac Planted, 172 bu/ac Yield, 12.531 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)                           (less 10 ma vs USDA)

Harvested Acres                                  72.857 ma                                                       (less 12.5 ma vs USDA)

% Harvested-to-Planted                    88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                    172 bu/ac                                                        (less 4.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.531 bb                                                        (less 2.499 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     14.661 bb                                                       (less 2.499 bb vs USDA)  

Ethanol for Fuel Use                           5.250 bb                                                        (less    250 mb vs USDA)

Food & Industrial Use                         1.420 bb                                                          (less      15 mb vs USDA)

Seed Use                                                0.032 bb                                                        (up          2 mb vs USDA)

Exports                                                    1.709 bb                                                       (less    566 mb vs USDA)

Feed & Residual Use                            5.000 bb                                                          (less    450 mb vs USDA)

Total U.S. Corn Use                           13.411 bb                                                        (less  1.235 bb vs USDA)

Ending Stocks                                         1.250 bb                                                        (less  1.235 bb vs USDA)

% Ending Stocks-to-Use                         9.32%                                                        (less      7.61% vs USDA)

U.S. Corn Season Avg. Farm Price        $4.35 /bu                                                    (up  $1.05 /bu vs USDA)

Note: In this scenario, significant rationing of grain use occurs, with prices increasing to make that occur.   

******

 

Scenario #2MY 2019/20-KSU: Less 10 mln ac Planted, 167 bu/ac Yield, 12.167 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)                           (less 10 ma vs USDA)

Harvested Acres                                   72.857 ma                                                      (less 12.5 ma vs USDA)

% Harvested-to-Planted                       88.0%                                                            (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                                        (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.167 bb                                                       (less 2.863 bb vs USDA)

Imports                                                 0.035 bb

Total U.S. Corn Supply                    14.297 bb                                                       (less 2.863 bb vs USDA)  

Ethanol for Fuel Use                          5.225 bb                                                        (less    275 mb vs USDA)

Food & Industrial Use                         1.420 bb                                                         (less      15 mb vs USDA)

Seed Use                                             0.032 bb                                                         (up          2 mb vs USDA)

Exports                                                1.570 bb                                                         (less    705 mb vs USDA)

Feed & Residual Use                          4.950 bb                                                         (less    500 mb vs USDA)

Total U.S. Corn Use                        13.197 bb                                                        (less  1.478 bb vs USDA)

Ending Stocks                                         1.100 bb                                                      (less  1.385 bb vs USDA)

% Ending Stocks-to-Use                         8.34%                                                      (less      8.59% vs USDA)

U.S. Corn Season Avg. Farm Price    $5.45 /bu                                                     (up  $2.15 /bu vs USDA)

Note: In this scenario, further significant rationing of grain use occurs, with prices increasing to over $5.00 to make that occur on very limited supplies.  The implicit assumption in these supply-demand scenarios is that U.S. corn markets are likely to be reticent to allow U.S. corn ending stocks to move much below 1.0 bb.    

*****

 

Scenario #3MY 2019/20-KSU: Less 15 mln ac Planted, 172 bu/ac Yield, 11.775 bb Crop – 15% Probability:

Planted Acres                                     77.792 million acres (ma)                           (less 15 ma vs USDA)

Harvested Acres                                   68.457 ma                                                       (less 16.9 ma vs USDA)

% Harvested-to-Planted                       88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                      172 bu/ac                                                        (less 4.0 bu/ac vs USDA)

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production             11.775 bb                                                        (less 3.255 bb vs USDA)

Imports                                                0.035 bb

Total U.S. Corn Supply                    13.905 bb                                                        (less 3.255 bb vs USDA)  

Ethanol for Fuel Use                          5.150 bb                                                        (less    350 mb vs USDA)

Food & Industrial Use                          1.400 bb                                                         (less      35 mb vs USDA)

Seed Use                                              0.033 bb                                                         (up          3 mb vs USDA)

Exports                                                 1.472 bb                                                         (less    803 mb vs USDA)

Feed & Residual Use                            4.850 bb                                                         (less    600 mb vs USDA)

Total U.S. Corn Use                          12.905 bb                                                        (less  1.770 bb vs USDA)

Ending Stocks                                       1.000 bb                                                         (less  1.485 bb vs USDA)

% Ending Stocks-to-Use                    7.75%                                                            (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price      $5.70 /bu                                                     (up  $2.40 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.775 bb, ending stocks fall to 1.000 bb and prices increase to $5.70 /bu to ration usage.    

*****

 

Scenario #4MY 2019/20-KSU: Less 15 mln ac Planted, 167 bu/ac Yield, 11.432 bb Crop – 15% Probability:

Planted Acres                                    77.792 million acres (ma)                           (less 15 ma vs USDA)

Harvested Acres                                  68.457 ma                                                       (less 16.9 ma vs USDA)

% Harvested-to-Planted                    88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                                        (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              11.432 bb                                                        (less 3.598 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     13.562 bb                                                        (less 3.598 bb vs USDA)  

Ethanol for Fuel Use                           5.100 bb                                                        (less    400 mb vs USDA)

Food & Industrial Use                         1.400 bb                                                         (less      35 mb vs USDA)

Seed Use                                                0.033 bb                                                       (up          3 mb vs USDA)

Exports                                                    1.379 bb                                                         (less    896 mb vs USDA)

Feed & Residual Use                            4.750 bb                                                         (less    700 mb vs USDA)

Total U.S. Corn Use                           12.662 bb                                                        (less  2.013 bb vs USDA)

Ending Stocks                                         0.900 bb                                                        (less  1.585 bb vs USDA)

% Ending Stocks-to-Use                         7.11%                                                          (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price    $6.00 /bu                                                      (up  $2.70 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.432 bb, ending stocks fall below 1.000 bb down to 900 mb, with U.S. corn prices increasing to near $6.00 /bu to further ration usage.    

KSU AgEcon: “The Impact of U.S.-China Trade Conflict on U.S. Corn Prices”

The Impact of U.S.-China Trade Conflict on U.S. Corn Prices

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

May 17, 2019

 

Overview

Estimates of the impact of U.S.-China trade conflicts from outside University sources range from $0.13-21 per bushel on the high side to $0.08 per bushel.  An analysis by Kansas State University Ag Economist Daniel O’Brien based on an analysis of seasonal price patterns estimates that average monthly impact from January through – mid May 2019 averaged $0.20 per bushel per month.

Underlying CFTC position of traders data confirms the record “bearish” short sale aggregate position of Managed Money (Spec) traders that began in January 2019 and trended to record bearish levels in April.

That market prospects for U.S. corn declined during the January – early May period is in evidence from the USDA World Agricultural Supply and Demand Estimates (WASDE) reports during this time.  The USDA increased its projected U.S. corn ending stocks-to-use from 11.85% in January to 14.45% in May 2019 for the “current crop” 2018/19 marketing year for U.S. corn.  During that time the only changes affecting U.S. corn supply-demand balances were adjustments on the usage side – with market expectations for U.S. corn use declining.  The U.S. corn projected season average price declined $0.10 per bushel from $3.60 in February down to $3.50 per bushel in the May WASDE report.

Crop revenue insurance coverage levels are an additional important factor to consider in assessing the impact of low U.S. corn futures prices during the January through early May 2019 period. The planning price for corn crop revenue insurance in year 2019 in Kansas was determined by taking the average of DEC 2019 Corn futures during the month of February 2019.  The calculated corn planning price for crop revenue insurance in Kansas for conventional (non-high amylose) corn was $4.00 per bushel.

To the degree that U.S.-China trade conflicts may have led to lower DEC 2019 corn futures prices during the February period, then Kansas and U.S. corn producers’ 2019 crop revenue insurance planning prices and revenue coverage are lower than would have occurred otherwise.  In a year with significant 2019 crop production risk to date, negative effects on U.S. corn producers’ crop insurance revenue coverage levels are likely to be a critically important factor.

*****

Introduction

Since December 2018, U.S. corn prices have been moving in a pattern contrary to normal seasonal price pattern found in Kansas, with essentially no seasonal price increases.  During the January 2019 through projected estimated May 2019 period, on a monthly basis U.S. corn prices were from $0.07 to as much as $0.34 / bushel under the levels they would have been if normal seasonal average price patterns prevailed that we have seen historically in Kansas corn markets.

The main idea of this article is that market perceptions about the progress of U.S.-China trade negotiations or lack thereof seem to have had a negative effect on U.S. corn markets from January through mid-May 2019 – at least until U.S. corn planting concerns began to predominate.

Following is a timeline since June 2018 of a U.S-China trade conflict actions and reactions, quoted from a Reuters article on May 8th, titled “Timeline: Key dates in the U.S.-China trade war”,

https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-u-s-china-trade-war-idUSKCN1SE2OZ

July 10, 2018 – S&P 500: +0.35% , United States unveils plans for 10% tariffs on $200 billion of Chinese imports.

Aug. 1, 2018 – S&P 500: -0.10% , Trump orders USTR to increase the tariffs on $200 billion of Chinese imports to 25% from the originally proposed 10%.

Aug. 7, 2018 – S&P 500: +0.28% , United States releases the list of $16 billion of Chinese goods to be subject to 25% tariffs. China retaliates with 25% duties on $16 billion of U.S. goods.

Aug. 23, 2018 – S&P 500: -0.17% , Tariffs on goods appearing on the Aug. 7 lists from both United States and China take effect.

Sept. 7, 2018 – S&P 500: -0.22% , Trump threatens tariffs on $267 billion more of Chinese imports.

Sept. 24, 2018 – S&P 500: -0.35% , U.S. implements 10% tariffs on $200 billion of Chinese imports. The administration says the rate will increase to 25% on Jan. 1, 2019. China answers with duties of its own on $60 billion of U.S. goods.

Dec. 1, 2018 – S&P 500: +1.09% (Monday, Dec. 3) , U.S. & China agree on a 90-day halt to new tariffs. Trump agrees to put off the Jan. 1 scheduled increase on tariffs on $200 billion of Chinese goods until early March while talks between the two countries take place. China agrees to buy a “very substantial” amount of U.S. products.

Feb. 24, 2019 – S&P 500: +0.12% (Monday, Feb 25) , Trump extends the March 1 deadline, leaving the tariffs on $200 billion of Chinese goods at 10% on an open-ended basis.

May 5, 2019 – S&P 500: -0.45% (Monday, May 6) , Trump tweets that he intends to raise the tariffs rate on $200 billion of Chinese goods to 25% on May 10.

May 8, 2019 – S&P 500: -0.16%

From this it seems that the DEC-JAN period started off quite positive for the U.S.-China trade negotiations, with a temporary 90 day halt of tariffs.  Then by the time we get to late February, there is a negative announcement in the market – apparently being interpreted by corn market participants that limited positive progress had been made in the negotiations.

 

Flat vs Seasonal Prices in the “Current Crop” 2018/19 Marketing Year

If monthly differentials are averaged across the December 2018 through projected May 2019 period, the average monthly price difference between a regular seasonal pattern of U.S. corn prices and what occurred is estimated to be $0.20 per bushel per month based on cash and futures prices available through May 16, 2019.  If the next step is taken to weight these prices by USDA estimates of monthly U.S. percent of cash corn sales, then the average monthly U.S. corn price difference is scaled down to $0.07 per bushel per month.  Which approach to take – weighting by average monthly sales percentages or not, is a matter of debate.

Figures 1abc and Figures 2a-b illustrate this pattern in futures and cash corn prices.  Figures 2a and 2b especially and Table 1a show specific details of how during January through mid-May 2019 U.S. cash corn prices have been less than would be occur should average seasonal price patterns occur based on historic seasonal corn price patterns in Kansas.

 

“Bearish” Corn Market Impact Shown in CFTC Commitment of Traders Data

The bearish tone of the U.S. corn market during the January to mid-May 2019 period is well documented, as shown by the Commodity Futures Trading Commission (CFTC) commitment of traders data in Figures 3a-d.  Note especially the record bearish or “sell” position of Managed Money Traders as shown in Figures 3a and 3d.  The implication is that grain market speculative traders held record bearish positions during parts of January to mid-May 2019.

The CFTC data for the aggregate trading positions of Managed Money Traders (Specs) or MMT-Specs shows something of the “effect” of a change in market sentiments about a positive resolution to the U.S.-China Trade conflict beginning to occur during January 2019 and continuing through mid-May 2019.

The CFTC Commitment of Traders data indicate that December 2018 was a time of relative optimism for MMT-Specs, as their long positions for the weeks ending 12/2-12/31 were net long by a range of 200-246 million bushels.

Progressing forward, January 2019 showed MMT-Specs week ending positions ranging from 246 mb long on 1/8/2019 to 49 mb short on 1/29/2019.

In February 2019, short positions of MMT-Specs grew from 33 mb short on 2/5/2019 to 590 mb short on 2/26/2019.

In March 2019 the trend to short positions for MMT-Specs accelerated, from 964 mb on 3/5/2019 to a range of 1.092 – 1.415 billion bushels the rest of the month.

Then in April 2019 new records were set for short positions for Corn futures, with a range of 1.319 bb to 1.721 bb for the month, with the record large net short position of 1.721 bb set for the week ending 4/23/2019.

For the week ending May 7, 2019 net short positions for corn futures traders were 1.480 bb.  Since then, planting concerns have taken over and MMT-Specs have been moving away from their short positions and rebalancing toward the long side.

This CFTC commitment of traders information indicates that corn market Managed Money (Spec) traders’ sentiments turned or transitioned to being decidedly bearish as time moved from the beginning the December 2018 through January and February 2019.  And that the bearish trend continued on to record short or “bearish” levels in April 2019 and early May 2019.

The implication here is that the lack of success in U.S.-China trade negotiations have been a primary causal factor in that occurring.   The success of the 2019 Brazilian 2nd corn crop also contributed – likely in a sort of “piling on” negative, confirming manner.

 

 “Direct” Impact on Soybeans Effect Expected Corn Market Supply-Demand & Prices

The primary news affecting grain markets during that period was the ongoing status of U.S.-China trade negotiations.  While U.S. corn exports to China have not been a main driver in U.S. grain markets and trader sentiments, sharp reductions in U.S. soybean exports to China as a result of these trade tensions had increased the likelihood of reductions in U.S. soybean planted acreage in 2019, and compensatory increases in U.S. corn acreage.

This is consistent with the USDA’s analysis at the 2019 Agricultural Outlook Forum in Arlington, VA in February 2019.  The direct effects on the U.S. soybean market from reduced U.S. soybean exports to China resulted in strong negative indirect secondary impacts on the U.S. corn market, as the USDA and the grain trade expected U.S. corn acreage and production to increase – with prices moving sharply lower for U.S. corn in fall 2019.  And that sentiment has held sway among the corn trade until recently in mid-May 2019 when 2019 U.S. corn planting problems became serious enough to cause corn futures prices to begin trending higher.

 

Evidence from USDA WASDE Report Projections

Also, it is noteworthy that in its World Agricultural Supply and Demand Estimate (WASDE) reports, since November-January 2019 the USDA has lowered its forecast of U.S. Corn season average prices by $0.10 per bushel from $5.60 to $5.50.  Note that this is calculated as a season average price “weighted by % monthly sales” basis by the percent of annual grain marketings projected for all 12 months of the “current crop” 2018/19 marketing year – starting September 2018 and lasting through August 2019.  So, the USDA’s price projection for “current crop” MY 2018/19 of $5.50 per bushel relies in large part on the accuracy of the USDA’s estimates of past monthly weightings of sales.

If in this marketing year, U.S. farmers have delayed sales during the harvest period of September-November in greater proportion than normal until later (say during December – April).  IF that occurred, THEN the estimated monthly percent of marketings used by the USDA’s calculation method would underestimate the impact on U.S. corn producers of the flat or non-seasonal price action that occurred during the January through mid-May 2019 period.

 

Impact on Crop Revenue Insurance Planning Prices from February 2019

An important factor to consider for the sake of U.S. corn producer’s risk management purposes is how the corn futures market’s bearish reaction U.S.-China trade issues potentially affected crop revenue insurance payments for the 2019 crop.  Revenue insurance planning prices for 2019 crops are calculated by taking the average of daily closes for DEC 2019 corn futures during the month of February 2019.  Therefore, to the degree that there was a negative effect on DEC 2019 Corn futures from U.S.-China trade negotiations, then planning prices for revenue-based crop insurance coverage for all U.S. corn producers will have been diminished – since DEC 2019 Corn futures prices were negatively affected by U.S.-China trade conflicts during February 2019.

 

Evidence from Other University Sources

KSU Agricultural Economist Nathen Hendricks cites other analyses that are for the most part consistent with these findings.  Hendricks cites the following studies and results:

  • Researchers at Iowa State University estimate that corn prices decreased by 4-6% or $0.13-$21/bushel as a result of the U.S.-China trade conflict. See p. 8 of their study: https://www.card.iastate.edu/products/publications/pdf/18pb25.pdf . They use a partial equilibrium model that essentially has supply and demand curves to simulate the impact of the tariffs.
  • Researchers at the University of Illinois estimate that corn prices decreased by $0.08/bushel in 2018 due to the U.S.-China trade conflict. See table 1 in their study: https://farmdocdaily.illinois.edu/2019/04/the-trade-conflict-impact-on-illinois-agriculture-in-2018.html. They use regression analysis where they effectively compare how much prices dropped from spring to fall 2018 and how much larger the price decrease was than would have been predicted based on the relatively large yield in 2018.

 

Joe Janzen of Kansas State University has also addressed some of these and other related issues on KSU Agriculture Today radio on Wednesday, May 15th.  Janzen discussed the probable impact of another round of trade aid for U.S. farmers.  In particular Jaznen examined the probable impact of direct trade mitigation that occurred for farmers through the first round of Market Facilitation Payments (MFP) as a compensation to U.S. farmers for the negative affect of incomes from the U.S.-China trade conflicts.

*****

KSU Weekly Grain Market Update – The position of grain markets just prior to the USDA Reports on 5/10/209

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 10, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 10, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 10th recording is be available at the KSU Agriculture Today website at this time.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Weekly Grain Market Update (5/3/2019) – 2019 Corn Planting Problems, Kansas Wheat Tour Results, and Positive Feedgrain Export Trends

Corn Market Decision Time re: Planting Prospects

and

Examining 2019 Kansas Wheat Tour Results

Daniel M. O’Brien, Extension Agricultural Economist-Kansas State University

May 3, 2019

Point #1) Delayed U.S. Corn Plantings in May 2019

The situation with 2019 U.S. corn plantings as of May 3, 2019 is the following.  First, as of April 28th the USDA reports that corn plantings are delayed in several key corn producing states in the U.S. Corn Belt – most notably in Illinois (9% vs 43% 5-yr avg), Minnesota (2% vs 24% 5-yr avg), Indiana (2% vs 17% 5-yr avg), and Ohio (2% vs 13% 5-yr avg).  Plantings in Iowa, Kansas, Missouri, Nebraska, North Carolina, North Dakota, and Tennessee are also trailing the most recent 5 year average pace, but not a seriously as in IL, MN, IN, and OH.  With credible weather service forecasts for significant rainfall over many of these central and eastern U.S. Corn Belt states over the next week, prospects for timely plantings of 2019 U.S. corn acres are declining in a quantifiable manner.

Corn futures markets have not responded to this decline in 2019 U.S. corn planting and associated production prospects.  Within the next 1-2 weeks it seems these issues of 2019 U.S. corn planting prospects, how plantings could affect 2019 U.S. corn production, supply-demand balances, and expected corn prices for what remains of the “current crop” 2018/19 marketing year (MY) through August 31, 2019, and for “new crop” MY 2019/20 will all likely have to be dealt with by the corn futures and cash markets.

If the 2019 U.S. corn crop is planted in a timely manner, then it will have fully adequate soil moisture to begin development with – and which could provide for growth from May through June and into July.

However, if instead of the 92.792 million acres (ma) projected for year 2019 by the USDA in the Prospective Plantings report on March 29th, actual 2019 U.S. corn plantings are reduced by 5% down to 88.152 ma, or by 10% down to 83.513 ma, it would likely have significant, tangible, negative impacts on 2019 U.S. corn production.

At its current projection of 92.792 ma planted, 84.723 ma harvested (91.30% harvested to planted acres), and 176.4 bu/ac yields, the USDA is implicitly forecasting U.S. corn production in year 2019 would be 14.945 billion bushels

However, IF 2019 U.S. corn plantings decline 5% to 88.152 ma, then with 91.30% harvested-to-planted acres, there would be 80.486 ma harvested.  And with the same 176.4 bu/ac yield, U.S. corn production would be 14.198 bbdown 747 mb from the initial USDA implicit forecast of 14.945 bb.

In addition, IF U.S. corn plantings are down 10% from the USDA projection to 83.513 ma, then using the same harvested-to-planted acres factor of 91.30% to figure 2019 U.S. corn harvested acres at 76.247 ma, and using 176.4 bu/ac again, then 2019 U.S. corn production would fall to 13.450 bb down 1.495 bb from the USDA’s initial levels of 14.945 bb 2019 U.S. corn production.

Therefore, either a 5% or especially a 10% reduction in U.S. 2019 Corn planted acres would have significant negative impacts on U.S. corn production in 2019, leading to much tighter U.S. corn ending stocks, and higher cash prices as usage would be rationed on smaller supplies.

Point #2) Examining the Results of the 2019 Kansas Wheat Tour

This week’s 2019 Kansas Wheat Tour projected the 2019 Kansas wheat yield to be 47.2 bu/ac, with an implicit harvested acreage estimate of 6.494 million acres (92.8% harvested-to-planted acres off of 7.000 ma planted), and 2019 Kansas wheat production of 306,500,000 bushels (i.e., 306.5 million bushels or mb).   According to KSU Extension Agronomist Romulo Lulato ( lollato@ksu.edu), the Kansas wheat crop is 3 to 4 weeks behind normal in maturity, with the next month being crucial to crop development and possible disease threats.

Since year 2014, the annual Kansas Wheat Tour has UNDER-forecast Kansas wheat production by 10.4% (in 2015), 18.2% (in 2016), 15..6% (in 2017), and 12.3% (in 2018).  The reason for this under estimate of Kansas production in recent years has been a combination of underestimated yields, and especially low projections of harvested acreage.   During the years 2011-2018 period the Kansas Wheat Tour underestimated final Kansas wheat harvested acres each year, ranging from 4% too low in 2016 to 13.7% in 2011.  For instance, in 2018 Kansas harvested acres of wheat were implicitly forecast to be 6.576 ma, but ended up being 7.300 ma as estimated by USDA.  Following the same trend, it is possible the implicit harvested acreage of 6.494 ma for wheat in Kansas for 2019 could end up being too low.

Finally, total Hard Red Winter (HRW) wheat production in the central and southern plains states of Nebraska, Colorado, Kansas, Oklahoma and Texas is forecast to be 638 million bushels (mb) in 2019, up from 523 mb for these states in 2018, but comparable to 635 mb in 2017, 870 mb in 2016, and 655 mb in 2015.  The 2019 forecast for Texas came from KSU Calculations, while those for Kansas, Nebraska, Colorado, and Oklahoma came from the 2019 Kansas Wheat Tour.

An additional factor to watch as the 2019 Kansas wheat crop develops will be the levels of protein and/or other quality factors.  It is likely that significant amounts of the high protein / good quality 2018 Kansas wheat crop likely still in storage in Kansas grain elevators.  As a result, IF the 2019 Kansas wheat crop were of lower protein / quality, THEN it is likely that carryover supplies from the higher protein/higher quality 2018 crop would be blended with the 2019 crop to enhance marketability.

******

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 3, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 3, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Weekly Grain Market Analysis Through 4/26/2019 – Watching Weather for Corn Planting plus Positive Sorghum and HRW Wheat Exports Weeks

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, April 26, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program was aired at 10:03 a.m. central time, Friday, April 26, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…