There appeared to be some momentum in the agricultural market, and the potential for feed crop prices to increase in the early part of the US growing season, said James Mintert, director of the Center for Commercial Agriculture, during the 2018 Fall Crop Outlook webinar from Purdue University’s Center for Commercial Agriculture.
However, the imposition of tariffs and good growing weather dampened some of those prospects, he said.
Thursday's [September 13] webinar focused on some of the implications for feed crop production, tariffs influence and potential marketing.
The supply and demand fundamentals for US corn present a potentially positive picture, said Chris Hurt, professor in the department of agricultural economics at Purdue during the webinar. “We export half the soybeans in this country – exports are a big deal – [with] corn we export 14% of our corn, exports aren’t nearly as important,” he added.
However, the large soybean production presented more of a challenge, he said
“It’s not just a record crop, it’s a huge record crop,” he said. “We had heavy soybean acreage this year and then these tremendous yields and it is a bad year to have a huge crop when we’re limited in our ability to sell that with the tariffs we have with China.”
In addition to having record yields, US soybean production is expected to set a new record, said Mintert.
Currently, the US is looking at a large corn crop, said Hurt. “Of the last five years, we’ve had record [crops] four of those five years.”
This year’s production is not predicted to be a record, because of the acreage planted in corn, not because of yield per acre, he said. However, the demand predicts that much of the crop will be used.
“We’ll probably have record exports this year – we’re going to have a big crop, and we’ve seen South America shift heavily to soybeans so we’re going to have a really good export season on corn this year,” Hurt said. “We have a sound foundation at this point to talk about a strong possibility that we’ve made our lows and retested them yesterday on future markets.”
Tariffs, sales and soybeans
Earlier in 2018, there were indications that soybeans would be an opportunity for feed crop producers, said Hurt. “I remember during the winter saying that … there’s a keyword keyword to catch before you go to plant and it’s soybeans,” he added.
“It’s come back to haunt us,” he said. “Something came along and has not provided the opportunities we thought were going to be there with soybeans – that’s the tariffs.”
The expansion of soybean production was supported by the continued annual growth in imports by China, he said. “That now becomes a problem,” he added.
“Exports are down from last year, again this is the concern over the tariffs with China, but we have to say the export number is a fluid number,” he said. “We don’t have sound basis for operating in a world with 25% tariffs to China – we’ll sell more soybeans to Europe and we’ll sell more soybeans into countries in Africa and to non-Chinese Asian countries, but is that going to be enough to compensate for the loss of China?”
“The thought is no,” he added. “The tariffs really do change the dynamics of trade flow on soybeans.”
However, there also are some questions regarding what could happen if the trade disputes with China were resolved, said Mintert. An analysis of soybean exports to China by month for the last two marketing years provides an interesting picture.
China buys soybeans from the US strategically, or when they tend to be lower in price, said Hurt. Looking at past sales and exports, the first part of the marketing year from September through December tended to see the largest sales.
“We were sell or shipping to China 300m bushels of soybeans a month in October and November – that’s about the total production of Indiana – that was the amount we were selling to China per month in that peak time period at harvest time,” he said. “This is when China buys the beans. If you add December, that’s 800m bushels in October, November and December in 2016.”
Sales were strong in January and started to fade in February, he said. “We sell about 92% of all the beans we’re going to ship to China in the first half of the marketing year,” he added.
“If we’ve settled tomorrow the trade differences with China we’ve already missed probably a substantial portion of getting the vessels scheduled in to load these beans that are expected to be in West Coast ports and in New Orleans and Gulf ports in the next 30 or 60 days,” Hurt said. “We’ve already missed that and we’re certainly not going to settle tomorrow the trade disputes with China.”
There also appears to be evidence that there could be a long-term escalation of the trade conflict, he said. “We’ve already approved another $200bn of US tariffs on goods that China sends to us – that is approved and can be put into place any time, and then the Trump admin has another $267bn of additional tariffs they’re talking about,” he added.
If the trade tension continues into the autumn the concern increases, added Mintert. It also could continue to narrow the current range for soybean price toward the lower end.
Additionally, as soybeans are exported to other buyers like countries in Europe there may need to be a new series of logistics put in place, said Hurt. Previously, soybean logistics focused on shipping from the West Coast, which is the wrong side of the country for shipments going elsewhere.