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Review of Agricultural Commodity Prices - September 2019

Corn
Corn prices fell in August, dropping 12% from July but up 5% from year ago levels.  The combination of a negative WASDE report and improving weather continue to weight on corn prices. 
 
The key drivers to the corn price this month are 1) corn yield estimates continue to increase, 2) the crop has not been made yet which creates uncertainty 3) US-China trade negotiations and 4) ratification of the USMCA which Congress looking to make substantial change s to the agreement.
 
The size of the US corn crop continues to increase.  FC Stone expects corn yields of 169 bushels per acre as of October 2, 2019.[1]  ProFarmer estimates corn yields of 163.3 bushels per acres from its recent crop tour, though immaturity of the crop may create a degree of uncertainty.[2] 
 
Weather will play a role in maturity, although with each day that is frost free removes some of the uncertainty of the crop not reaching maturity. 
 
China did approve several domestic companies to make duty-free purchases of corn, which does indicate that if the trade war is settled, Chain would buy US corn.[3] 
 
Further to the above, to October 2nd, only 16% of Argentina’s corn is planted.[4]  Generally, farmers in Argentina start plating their soybeans after they finish corn planting.  Farmers in Argentina plant corn in two phases.[5]  They generally start planting the first phase in September and finish planting about the end of October.  Approximately 40-45% of the corn crop is planted during this phase.[6]   Very little corn is planted in November as it would pollinate during a hot and dry period in December. Corn planting starts again after the hot and dry period in December and finishes in January.[7]
 
Finally, US corn exports continue to lag behind last year due to 1) large South American production, 2) limited European Union purchases due to a large Ukraine crop[8].  A further negative for corn demand is the negative margins ethanol plants are facing. 
 
Result: It is tough to see corn rallying in the near future. 

Soybeans
August soybeans prices fell 3% from July and marginally from year ago levels due to improved weather and reduction in Chinese imports. 
 
The soybean complex continues to be driven by 1) US /China trade tensions 2) South American crop and weather conditions 3) Chinese demand for South American soybeans and 4) the final US soybean crop.
 
It is unclear when we will get a resolution to the US/China trade tension.  It is also unclear how much longer term demand has been destroyed by the trade war as China seeks out alternative supplies in the future. 
 
The South American crop will be sizable.  Infoma expects Brazilian soybean new crop production to increase 73 million tonnes to 121 million tonnes from year ago levels.[9]  Soybean planting should reach 50% by December and should be complete by mid-January.[10]   
 
Just like the corn crop, it is unclear if the soybean crop will finish.  Although with each day that is frost free, the weather premium is removed from the market[11]
 
 
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.
 
Wheat
Wheat fell 6% sequentially and 12% on a year over year basis.  The largest driver is now huge supplies of wheat and wheat supplies will likely increase throughout 2019/2020 after falling in 2018/2019.  In addition, global production of wheat should increase (the Ukraine is expected to increase production by 13%.[12]
 
Result:  The outlook for Wheat is lower   
 
 
[1] https://business.financialpost.com/pmn/business-pmn/soybeans-corn-wheat-retreat-from-highs-u-s-crop-eyed
[2] https://www.agweb.com/article/pro-farmer-national-corn-soybean-yield-estimate-below-usda-forecast
[3] Commodity Catch up – September 10,2 019 – BMO Capital markets
[4] Soybean and Corn Advisor – www.soybeansandcorn.com – October 2, 2019
[5] Ibid
[6] Ibid
[7] Ibid
[8] Commodity Catch up – September 10,2 019 – BMO Capital markets
[9] Commodity Cath up – September 10, 2019
[10] Soybean and Corn Advisor – www.soybeansandcorn.com – October 2, 2019
[11] Commodity Cath up – September 10, 2019
[12] Ibid