The days have grown shorter this August, which reminds me of what might be ahead. However, I am wishing for good things, warm weather, adequate rains and a wide-open fall. This August weekend feels like a bit of the calm before the storm. On Monday we may find out how many acres of corn and soybeans were planted for real this past spring. The August 12th USDA report has been long ballyhooed as the report that will tell us what farmers really think after being resurveyed in early July. Lots of market observers have become fortunetellers in the never-ending game of guessing what the market will do.
I think I will leave the report for next week because by that time we will know the acres, the stocks, and all the hype will have died down. Many observers are expecting a lot less corn acres than 91.7 and they’re even those who are expecting soybean acres to go down as well. That prevent plant number is widely anticipated. However, we must remember that at the end of the day, a commodity is a commodity is a commodity.
Interestingly enough, I began thinking about that again today. For those of us involved in farming we are very used to the word “commodity”. We grow corn, soybeans and wheat as well as livestock and it all generally gets put into that agricultural commodities narrative. That’s because a commodity is a basic good used in business that is interchangeable from any other commodity. In other words, corn is corn whether it’s grown in Ukraine, China or the United States. We use it for many things and then if we have any leftover we ship it overseas at the cheapest possible price. Those growing corn at the other end are usually aware of this great game. The reason I began thinking about this a little bit more today was because there are cracks in that façade. For instance, corn is corn, but are soybeans necessarily soybeans among the world’s biggest end-users? Of course, I am thinking about China who have decided not to buy any American agricultural commodities. At the same time, the Chinese are said to be barking at paying more for Brazilian soybeans because the price has risen $20 dollars a tonne since the Americans imposed new tariffs on China last week. Of course, none of us will know how this will end up. Needless to say, it would seem that maybe soybeans and other agricultural commodities should have barcodes. Increasingly, the worlds largest end-users are raising their nose on the ethnicity of grains.
China is the best example of this. As we all know they’re having a big dispute with United States over trade. American agriculture is taking the brunt of that trade war as the Chinese have stopped buying agricultural commodities. At the same time, China has stopped buying Canadian canola, pork, soybeans and other agricultural commodities because of our position on honoring an American extradition request for a Huwaei executive. It has led to some of those Brazilian premiums for soybeans as well as premiums around the world for other grains. Ukraine is now the supplier of choice for corn into China. Who knew, grains demand could be so political and complicated.
We all know geopolitics matters when it comes to our grain prices. 2018, if we didn’t know already taught us that. However, what is the difference between buying a commodity when the geopolitics demand a premium. For instance, does cheap always win when it comes to commodity prices? Up until this year, that was the lowest common denominator. However, when the worlds largest consumer of soybeans has a fight with the worlds second-largest producer, it gets a bit murky. Cheap, at least at sensitive times doesn’t always win.
What’s that mean? I think it means cheap doesn’t always necessarily win if the volumes are small, but when it comes to China, the US, Brazil and Russian wheat, cheap will eventually always win out. The current trade war with China and the United States is an anomaly, as there is ample supply in other places. If the South American crop gets in trouble next year, cheap will have a new definition. There won’t be any barcodes on global soybeans.
Part of the commodity puzzle will unravel on Monday as the USDA sheds some official light on the mystery prevent plant acreage giving us a true read of how much land didn’t get planted last spring. Of the land that did get planted, how healthy are those crops and what will national yield be? Markets could be limit down or limit up or maybe will just fizzle, because nobody knows.
Eventually when the smoke clears, both in the markets and on the trade front, cheap will eventually win. Corn is corn, wheat is wheat and soybeans believe it are not are soybeans. Just for the moment, there are barcodes on them, North American bar codes. Eventually cheap will make that all go away.