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Review of Agriculture Commodity Prices - July 2019

Review of Agricultural Commodity Prices – July 2019

Corn Prices Rally
After surging in May, prices in June increased  nearly 15% sequentially in June to over $4.35/bu and nearly 20% from year-ago levels due to weather delaying corn.
The key drivers to the corn price continue to be 1) US-China trade negotiations 2) ratification of the USMCA which Congress looking to make substantial change s to the agreement 3) wet weather in the mid-west and 4) flooding has substantially slowed down movement of grain to ports in America.
Further to the above, the status of the US corn crop is also unknown.  The June 28th Acreage report completely surprised the market with a much higher acreage of corn planted than market expectations.[1]   On August 12th, we will receive a revised USDA survey of planted acreage and until then, the market will be influenced by private sector estimates and surveys. 
South American corn output will most likely increase substantially.[2]  The USDA raised its Brazil corn production estimate by 1 million MT from last month to 101 million MT in 2018/19 (vs. 82 million MT last year), as rainfall is expected to boost second-crop corn yields.[3]   The USDA raised its Argentine corn output for 2019/20 by 1 million MT to 50 million MT (vs. 49 million MT in 2018/19 and 32 million MT in 2017/18), reflecting expectations of higher prices and higher yields.[4]  South American weather conditions are excellent.  Given the early soybean harvest, the high prices, there should be more safrinha corn planted early and into idea conditions[5].   
The wet weather has delayed planting and flooding has slowed down grain shipments to ports for export.  This leads to US corn to be less competitive against other exporters and also creates challenges domestic producers to find reasonably priced corn.  In fact, Ethanol margins in June fell to a loss of $0.27/gal. from a loss of $0.24/gal in May, as higher corn (15%) and lower corn oil prices (2%) more than offset higher ethanol (13%) and flat DDG values.[6]
Result: With the lack of clarity of US corn plantings (and the result lack of ability to predict production) corn prices could rally, especially if we see hot weather during pollination. 

June soybean prices increased 7% sequentially but declined 4% from year-ago levels. The soybean complex will continue to trade on political issues between the US and China.  Other issues (i.e issues with river transport in the United States, late planting impact on yield, South America soy production and African Swine Flu) will be secondary issues impacting the soybean complex trade. 
Soybean meal prices increased 6-7% sequentially, but declined 8% on a year-over year basis, due to cheap meal in China (ASF) and Argentina (increase in crush).
For the rest of 2019, Chinese demand could decrease and South American crush could increase.[7]   Soybean oil continues to lead gains in the complex given a lower U.S. crush (and U.S. lower soy oil production) and the potential for higher 2020 biodiesel production. Soybean oil prices increased 3% sequentially but declined 6-7% from year-ago levels.[8]
Result:  Although weather concerns could temporarily move soybeans higher, movement in the US- China trade dispute (with positive or negative) will be the driving force behind the price of soybeans.
Since hitting a multiyear low in mid-May, wheat prices have surged more than $1.00 or more than 25% through the end of June until retreating sharply (nearly $0.40) after the USDA report on June 28th.
The biggest driver in wheat is weather, particularly in Europe.  Weather has been hotter the usual in Europe impacting the wheat crop there.  Additionally, Western Canada has also experienced hot weather which could impact yields there. 
On the trade front, if the US-China trade dispute is settled, it is likely that China likely would buy U.S. wheat.[9]

Result:  This is one market where weather plays a huge role in the future price performance.  If we continue to see hot weather in major wheat producing areas, prices can move higher.   
[3] Commodity Catch Up – July 15, 2019 – BMO Capital Markets
[4] Commodity Catch Up – July 15, 2019 – BMO Capital Markets
[6] Commodity Catch Up – July 15, 2019 – BMO Capital Markets
[7] Commodity Catch Up – July 15, 2019 – BMO Capital Markets
[8] Commodity Catch Up – July 15, 2019 – BMO Capital Markets
[9] Commodity Catch Up – July 15, 2019 – BMO Capital Markets