Today was another day in the harvest of 2018, which meant it was overcast with the threat of rain in the offing. It has been an incredibly challenging harvest here in southwestern Ontario. As November grows older there are lots of soybeans in the field at this end of the province. Corn is standing tall, but it has its own set of problems, as DON levels are high in some areas. It is always a challenge for grain end users when there is a problem with the crop. One hog farmer has told me that if Don levels are too high in his corn, his pigs just stand there and squeal.
I’ve got similar issues as anybody else in the area. These issues are similar to past years in Ontario, which we’ve all survived. Sometimes we survive a little bit poorer, but that’s the nature of agriculture. If we could only control damaging weather events, which cause some of these problems.
As my combine was rumbling through the field today, the USDA came out with their November WASDE report. We’ve got big crops in the United States this year and many were looking at the November report to substantiate many earlier claims. The USDA actually lowered corn and soybean production and the yields for 2018/19. There was no limit move, with prices just trading a few pennies at the end of the day. The big crops are getting bigger but they are still big crops.
The USDA put US corn production of 14.626 billion bushels, which was down 152 million bushels from their October report. They actually lowered US national yield to 178.9 bushels per acre, which is down 1.8 bushels per acre from last month. USDA also reduced the soybean number by 1 bushel per acre from last month to 52.1 bushel per acres. That big soybean stocks number is inching its way to 1 billion with the current USDA estimate at 955 million bushels, which is up 70 million bushels from last month. That ladies and gentlemen, is a lot of soybeans, but it really isn’t news. However, compared to past years these soybean stocks numbers are like science fiction.
So much of this is dialed in and that was reflected in the tepid market reaction last Thursday. Corn was up one; soybeans were down a half on the news. There will be no WASDE crop report for December so will have to wait till January to see these final numbers. However, with the soybean stocks so large, you could almost feel the 2019 corn acreage growing south of the border.
It is easy to look at the situation and become comfortable. For instance, the way it looks now, we all should take our grain and hide under a rock because there’s just too much of it. However, we know that the world doesn’t work that way and maybe we should think a little bit more on the brighter side. There are a few variables in the mix that could send prices higher in the future.
One of the most talked about factor that can improve the price of soybeans would be some type of accommodation with China. I’ve been asked more than once over the past couple of weeks what I thought about President Trump meeting with the Chinese President in Argentina later this month. I’ve been a critic of the President’s trade war with China because of the obvious loss of Chinese demand for American soybeans. However, the President often does things quickly and it would not surprise me now if this ended quickly. I say this in spite of my past utterances, when I’ve said it could last for decades. I think all American soybean growers would like to see some type of announcement at the G 20 summit when Trump and Chinese President Xi meet.
Some of you may negate that and I fully understand why. It would seem that the Chinese have successfully not bought American beans in response to the tariffs imposed on their products. There’ve also enacted different policies within China to reduce the amount of protein in some of their feed rations for hogs. Brazilian premiums for cash soybeans are about the equivalent of the 25% tariff on American soybeans. My belief is that the Chinese will act rationally just like any other consumer would do when a commodity is cheaper somewhere else. I eventually see them buying soybeans from the cheapest possible source, which now is the United States. There is no particular reason to continue giving Brazil extra money for a commodity it doesn’t need to. Eventually, the reasons for doing that wear thin. Despite China’s intentions so far, that will eventually change.
The problem is nobody knows when, including your loyal scribe. However, I do know that cheap usually wins especially when it comes to our agricultural commodities. At the present time the cheapest soybeans are being left on the shelf on the world stage. It might’ve gotten that way through unusual means, but it will eventually settle down.
Of course, there could be a Black Swan in South America derailing that production machine. However, things look good down there right now in the production fields. Needless to say, nothing stays the same and Mother Nature will likely have the last say. However, when you’re standing on a mountain of grain, it can be hard to see. Don’t despair; in a geopolitical world which grain has got caught up in, there will be marketing opportunities ahead.