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Review of Agriculture Commodity Prices - May 2019
 
Commodity Prices
 
Corn prices continue to fall
Average corn prices fell 2% sequentially in April to $3.53/bu and 7% from year-ago levels.  There are several pressures on the price of corn.  First, the U.S. increased tariffs to 25% on $200 billion of Chinese goods on May 10.  President Trump also said that it is starting paperwork for 25% duties on another $325 billion in Chinese imports, while China announced retaliatory tariff hikes on $60 billion of U.S. goods.[1]   Second, the United States Department of Agriculture (USDA) May World Agriculture Supply and Demand Estimates (WASDE) report showed a 60 million bushel increase to the 2018/19 ending stocks to 2.095 billion bushels (verse expectations of 2.055 billion bushels driven by a 65 million bushel decrease in corn for ethanol usage and a 5 billion bushel reduction in imports.[2]   Third, South American corn output likely will increase 30-35% (up from an estimate of an increase of nearly 25% last month) reflecting the substantial increase in Brazil and Argentine corn production.[3]
 
It should be pointed out that South American weather conditions remain favorable and above historical averages.  Informa’s winter corn condition survey in early May found corn growing conditions to be the second highest in the survey’s history and none of the reporting states have winter corn rated in poor or very poor conditions.[4]
 
Another issue is moving grain within the United States to ports for export.  Due to flooding, parts of the Illinois is closed and the Chicago Mercantile Exchange declared Force Majeure on river loadouts of corn, wheat and beans[5].   
 
The positive for the price of corn is the wet weather which can move acres from corn to soybeans and help support the price of corn.  However, there are a number of negative fundamental factors that may curtail the use of corn (i.e. lower demand due to the effects of African Swine Flu).
 
 
Result:  Although there is some positives for corn (i.e. delayed plantings), it is tough to see corn push higher in the next few months as there are so many fundamental reasons why corn could trade sideways.
 
Trade Discussions Drive Soybean Prices…again.
April soybean prices declined 1-2% sequentially but declined 15% from year ago levels.  The future prices for soybeans to be driven by 1) U.S China trade discussions 2) South American Crop/weather conditions. 
 
A resolution of the Trade dispute would lead to higher prices for soybeans and lower US crush margins due to increased competition for US soybeans[6].  However, in the longer term, it is unknown how the trade disruption may lead to changing supply chains (i.e. China continue to source a higher percentage of beans from South America).
 
The South American soybean crop will likely be sizeable.  Yield data so far show early planted soybeans in central Argentina continue to be good in the mid to upper 50 bushel /acre yield.  Later planted soybeans yields are anticipated to be lower.  In Brazil, soybean production is expected to be 114.3 million tons down 4.9 million tons from last year.[7]
 
Result: Soybean prices would most likely see a pop higher in the event of a U.S.-China trade dispute resolution, but after that, there are significant headwinds to soybean prices.
 
Weak Export Prospects Pressure Wheat Prices
Average April wheat prices declined 1% sequentially to $4.51 a business and down 5% on a year-over year basis in April.  In general, growing conditions were quite good as compared to growing conditions in the South Hemisphere (i.e. Australia importing wheat for the first time in a decade due to drought).[8]    In the April WASDE report, the USDA raised its 2018/19 ending stocks by 5 million MT to 275.6 million MT (vs. expectations of 271 million MT) reflecting higher beginning stocks and lower domestic consumption estimates.[9]
 
Result: Out of the three commodities, wheat might have the most positive outlook (after discounting a pop in soybean prices if the U.S.-China trade dispute is resolved) due to some current shortages around the World. 
 
 
Disclaimer
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of BMO Nesbitt Burns Inc. ("BMO NBI"). Every effort has been made to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions that are accurate and complete. Information may be available to BMO NBI or its affiliates that is not reflected herein. However, neither the author nor BMO NBI makes any representation or warranty, express or implied, in respect thereof, takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. This report is not to be construed as an offer to sell or a solicitation for or an offer to buy any securities. BMO NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. BMO NBI -will buy from or sell to customers securities of issuers mentioned herein on a principal basis. BMO NBI, its affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO NBI or its affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. A significant lending relationship may exist between Bank of Montreal, or its affiliates, and certain of the issuers mentioned herein. BMO NBI is a wholly owned subsidiary of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Nesbitt Burns Corp. Member-Canadian Investor Protection Fund.
 
 
 
[1] Commodity Catch-up – May 14, 2019 – BMO Capital Markets
[4] Commodity Catch-up – May 14, 2019 – BMO Capital Markets
[5] Commodity Catch-up – May 14, 2019 – BMO Capital Markets
[6] Commodity Catch Up – May 14, 2019 – BMO Capital Markets
[7] Commodity Catch Up – Ma 14, 2019 – BMO Capital Markets
[9] United States Department of Agriculture World Agriculture Supply and Demand Estimate – April 9, 2019