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Review of Agriculture Commodity Prices - May 2020

Agriculture Commodity Outlook May 2020

Corn
The national cash corn price fell in May to $2.91 from $2.95 in April.   In reviewing the major issues in May they can be summarized into 1) weather, 2) trade issues and 3) production.

In the category of weather, difficult weather around the world was actually positive for the price of corn.  Brazil second crop corn output was cut due to drier than normal weather which made AgRural to cut its forecast for corn production to 66.7 million tonnes of corn in center-south of Brazil.[1]  Other analysts at Agroconsult revised their estimate of the second corn crop to 71.7 million tonnes, 3 million tonnes lower than predicted on March 31.[2]  However, weather conditions in the United States remained excellent for corn production which weighed on prices.

In the area of trade, the United States Department of Agriculture set coronavirus aid payments for corn, soybeans based on either half of their 2019 production or the supplies they had on hand as of January 15th.[3]  Although positive for farmer income, this could cause increased production of commodities.  Additionally, the United States did see increased buying of agricultural products under Phase 1 of the Trade Agreement.[4]  Although the price of corn dropping is not positive, as the price drops, it becomes more affordable in the World-wide export market.

The combination of lower ethanol demand due to fewer people driving also impacted the corn prices.  Although individuals did start driving more in May than in April, ethanol demand is still substantially below last year’s demand.  Ethanol uses approximately 40% of the US corn crop and it is difficult to be positive on the price of corn as long as so many drivers are not driving.[5]   A potential positive in terms of production is that is it unlikely farmers will plant 97 million acres of corn as the March 31 planting intentions report indicated.  If the actually planted acres come in at under 94 million acres, this could be positive for the price of corn.

Result:  The negatives still outweigh the positives and it is tough to be positive on the price of corn.

Soybeans
The national price of soybeans was basically unchanged in May with the average price being  $7.98 compared to $7.99 in April.  In reviewing the major issues in soybeans, they also can be summarized into 1) weather, 2) trade issues and 3) production.

Weather impacts the export of soybeans from South America as the water level on the Parana River where the majority of Argentina and Paraguay soybean exports leave from, is low and does not allow full ships to leave ports on this river.[6]  This can impact the efficiency of exports and therefore the cost of exports as well. 

On trade issues, China continues to import Brazilian soybeans.  In April, China’s soybeans imports rose 2.6% from a year earlier.[7]  Also recall that last year, the US-China trade war was going on and China was already buying significant soybeans from Brazil last year. 

In terms of production, the International Grains Council estimates that the global grains surplus is expected to be higher.  Grain production is forecasted to be 2.23 billion tonnes while consumption is expected to be 2.218 billion tonnes.[8]  Also, the USDA, in the April WASDE, raised it 2019/20 US Soybean carryout by 13% to 480 million bushels reflecting a stocks to use ratio of 12%.[9]

Result: Soybeans may look the most positive out of the 3 commodities.
 
Wheat
Wheat prices fell from an $5.22 in April to $4.91 in May. 

The biggest issues in the wheat market are weather and production.
In terms of weather, dry weather has impacted wheat grown in Europe and South America.  For example,, Brazilian Wheat stocks hit a record low. In April 2020.[10]  Already an importer of wheat, Brazilian wheat output was low last year after frost and drought and will be forced to increase wheat imports this year.  In late May, Russia downgraded its 2020 grain crop forecast to about 120 million tonnes of grain I 2020, slightly less than in 2019.[11]   Russia and Ukraine, major exporters of wheat, were hit by dry weather in April.  Ukraine has states that their winter wheat harvest is likely to be 23.3 million tonnes due to poor weather.  The 2019 crop was estimated to be 26 million tonnes.[12]  Also in Europe, the European Commission lowered its forecast for wheat production to 121.5 million tonnes from 125.8 million tonnes estimated in April.[13]  In these cases, it is generally dry weather that is the reason for the production cuts.

In terms of production and demand, COVID-19  has resulted in a demand in at-home baking and increased demand for flour which has given support to the price of wheat.  However, 2020/21 Australian wheat production is likely to increase 40% from a 12 year low of 15.2 million metric tonnes.[14]  This will be a major factor for global prices. 

Result: Although wheat has been supported in demand due to home cooking due to COVID-19 and due to weather issues, it is tough to be positive on the outlook for wheat.
 
 
[1] Inside Agriculture – Reuters – May 20, 2020
[2] Inside Agriculture – Reuters – May 27, 2020
[3] Inside Agriculture – Reuters – May 20, 2020
[4] Inside Agriculture – Reuters – May 22, 2020
[5] Commodity Catch Up – BMO Capital Markets – May 8, 2020
[6] Inside Agriculture – Reuters – May 20, 2020
[7] Inside Agriculture – Reuters – May 23, 2020
[8] Inside Agriculture – Reuters – May 29, 2020
[9] Commodity Catch up – BMO Capital Markets – May 8, 2020
[10] Inside Agriculture – Reuters – May 13, 2020
[11] Inside Agriculture – Reuters – May 21, 2020
[12] Inside Agriculture – Reuters – May 27, 2020
[13] Inside Agriculture – Reuters – May 29, 2020
[14] Commodity Catch up – BMO Capital Markets – May 8, 2020