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Review of Agriculture Commodity Prices – April 2020


In April, corn prices fell 9% sequentially to the $3.26/bu. level and 9% from year-ago levels and are getting close to the important $3 level[1].
The largest issues impacting the corn market are 1) US Production, 2) trade, 3) South American supply.
Growers planted into good field condition this year and much, much better than planting conditions than in 2019.[2]  The USDA estimates that U.S. corn supplies will rise to their highest in 33 years due to substantial plantings and an anticipated record crop.[3]  Combined with a dramatic drop in ethanol (ethanol accounts for approximately 40% of annual corn use)[4] demand due to lower driving, there could be a substantial carryout of US corn by end of the marketing year.

However, in the month of April, the US government did announce a $19 billion relief program to help U.S. farmer’s deal with the fallout of the coronavirus, including $16 billion in direct payments to producers and purchases of meat, dairy, vegetables and other products. There will be up to $3 billion in farm goods purchased and be distributed to food banks, churches and aid groups.[5] 

However, the USDA did report in a recent report that U.S. farmers likely will plant 97 million acres of corn in 2020, which was higher than the trade estimate of 94 million acres.[6]  Also, USDA reported 27% of the U.S. corn crop was planted as of April 26, a 20-point jump for the week and seven points ahead of the five-year average.[7]
In trade issues, the United Kingdom is planning to cut tariffs on U.S. agricultural imports before a free trade negotiation starts.[8]  This is a good faith concession the UK government is making in order to gain favour with the US government.  The United Kingdom is the 19th largest importer of corn in the World.[9]

China does look like it is trying to fulfill the “Phase 1” trade deal as the country did by $5.05 billion worth of farm goods from the United States in the first quarter of 2020, up 110% from last year.[10]   However, President Trump has made a number of comments as the coronavirus has impacted the United States that the US may demand retribution or payment from China due to allowing the virus to spread.[11]   This demand could impact trade. 

However, as US corn falls in price, I would expect exports to increase as it starts to get more competitive on global markets.  However, if corn falls to much, there are tariffs which come into effect.  The E.U. announced it will apply a duty of 5.27 euros ($5.72) per metric ton on imported corn starting  immediately. The tariff is triggered when the cost of corn imported from the U.S. falls below an E.U. price floor for 10 consecutive days, while the duties will be removed if prices revert back above the E.U.’s price floor on a 10-day rolling average.[12]
A strategic issue that could come about is the demand for plant based protein in Asia due to the link of wild animal meat and the coronavirus could make people rethink their diets.  Although a small percentage of the market now, vegetarian alternatives to meat are growing in popularity.[13]

In South America, output of corn is likely to increase 3-4% to ~154 MMT in 2020.[14]  The weather has not been great in certain parts of South American as much of Brazil received below average rains.  This is a key part of the growing year for Brazil as the second’s annual crop of corn accounts for about three-quarters of the country’s output.[15] 
Conclusion: With such potentially massive corn stocks forcasted for this year, it is hard to be positive on the price of corn.


April soybean prices declined 2% from March and 4% from year-ago levels driven by ongoing trade uncertainty (China Phase 1), COVID-19 virus implications (fluid situation), and larger global crops.[16]
The largest issues impacting the soybean market are 1) ability of South America to export due to low water levels due to drought 2) large supplies from South America 3) weak South American Currency 4) US production and issues surrounding the coronavirus and 5) trade.

Exports from South America have been impacted due to low water levels on the Parana River in Argentina.  The water level is the lowest is the lowest in 50 years and the lowest ever recorded during the month of April since records started in 1884 according to the Rosario Grain Exchange.[17]  This causes vessels that normally hold 50,000 tons, only to be filled to approximately 40,000 tons.  The ports near Rosario, on the Parana River, are responsible for 80% of Argentina's grain exports.[18]

The 2019/20 Brazilian soybean estimate was lowered 1.74 million tons from their April estimate to 120.32 million tons. If verified, the Brazilian soybean crop would be 4.6% larger than last year's crop of 115.0 million tons.[19] Conab increased the 2019/20 Brazilian corn estimate 0.47 million tons to 102.3 million compared to their April estimate of 101.8 million tons. All the increase in the corn estimate came from a larger safrinha corn production. They are now projecting a safrinha corn production of 75.9 million tons compared to their April estimate of 75.4 million tons.[20]

In April, the Brazilian currency got close to trading at 5.9 reals per dollar.. At one point in the month, the Brazilian currency had devalued almost 50% since the start of the year.[21]

Thus far in 2020, Brazil has exported 31.4 million tons of soybeans compared to 24 million during the same period in 2019. Brazil's soybean exports are going full force thanks to the Brazilian currency that is setting record weakness compared to the U.S. dollar.[22]

The amount of forward contracting of soybeans in Brazil is setting records. In addition to having sold 80% of their 2019/20 soybean production compared to an average of about 60%, Brazilian farmers have already forward contracted 35% of their anticipated 2020/21 soybean production, which is record high for this time of the year. On average, approximately 15% of the next crop would be contracted by mid-April. The 2020/21 soybean crop will be planted next September-October-November and harvested next January-February-March.[23] The record fast selling pace has been motivated by high domestic soybean prices resulting from the devaluation of the Brazilian currency. 

According to Fernando Pimentel from the consulting firm Agrosecurity Consultoria, soybean farmers that own their own land in the municipality of Sorriso, Mato Grosso, had profit margins of 20% to 25% on their 2019/20 soybean production.[24]
There is very little price advantage for Brazilian soybeans, but they are better quality compared to U.S. soybeans in terms of protein and oil which makes them attractive for Chinese buyers. As of late last week, June soybeans from Brazil were US$ 339.60 per ton compared to May soybeans from the U.S. at US$ 340.66 per ton.[25]

Although record harvests are still expected, dry weather has prevented Brazil’s current corn and soybean crops from reaching the eye-popping levels that many market analysts believed would be possible. Almost all of Brazil’s soybean fields are harvested, but the second-crop corn is still in the vulnerable stages of growth. Rainfall has been disappointing in some regions, and if the recent dry pattern does not clear, corn output could fall from expectations. [26]

China derived the majority of its 2019 soybean imports from Brazil (and continues to do so given the weakness in the Brazilian Real), but U.S. shipments should accelerate starting in the summer as U.S. beans start to gain competitiveness from August to January (i.e., Brazil’s old crop supply continues to dwindle and Brazilian farmers remain aggressive sellers).[27]
The USDA, in its April WASDE, raised its 2019/20 U.S. soybean carryout by 13% (55 million bushels) to 480 million  reflecting a stocks-to-use ratio of 12% and reduced its 2019/20 U.S. soybean exports estimate by 3% (50 million bushels) to 1.775 billion bushels as U.S. beans remain less competitive to Brazilian beans due to currency.[28]

Conclusion: If China commits to fulfilling Phase 1 of the trade deal and with North American soybeans being cheap in the coming months, there could be good demand for soybeans.

Wheat prices exhibited strength in April, as prices hovered around the $5.50/bu. level for most of
the month. The markets reflect strong domestic milling demand related to COVID-19 (more
baking at home) against sluggish export sales, better U.S. crop ratings, and falling corn prices.[29]

Average April wheat prices increased 2% sequentially to $5.48/bu. and 22% on a year-over-year basis
($4.51/bu. a year ago). Wheat prices have been supported by: 1) downward near-term supply revisions
(near five-year lows); 2) smaller Australian crop due to record drought; 3) U.S.-China Phase 1 purchase
Agreements (wheat included); and 4) an increase in domestic flour milling demand (i.e., COVID-19 stayat-home directives).[30]
In recent USDA report, the USDA estimated global wheat production to increase 3-4% y/y[31]and a recent USDA’s winter wheat crop assessment dropped to 54% “good” to “excellent”[32]
 Conclusion: Wheat continues to look the best out of the 3 commodities.
[1] Commodity Catch up – BMO Capital Markets May 7, 2020
[2] Inside Agriculture – April 24, 2020
[3] Inside Agriculture – May 13, 2020
[4] Commodity Round Up – BMO Capital Markets – May 7, 2020
[5] Inside Agriculture – April 20, 2020
[6] Commodity Round Up – BMO Capital Markets – May 7, 2020
[7] Commodity Round Up – BMO Capital Markets – May 7, 2020
[8] Inside agriculture – May 14, 2020
[10] Inside Agriculture – April 14, 2020
[11] Commodity Round Up – BMO Capital Markets – May 7, 2020
[12] Commodity Round Up – BMO Capital Markets – May 7, 2020
[13] Inside Agriculture – April 22, 2020
[14] Commodity Round Up – BMO Capital Markets – May 7, 2020
[15] Inside Agriculture – May 6, 2020
[16] Commodity Round Up – BMO Capital Markets – May 7, 2020
[17] Argentina askes Brazil to Continue Increasing Flow on Parana River – – April 27, 2020
[18] More Logistical Problems at Argentine Ports – – May 15, 2020
[19] Conab Lowers Brazilian Soybean Estimate, increases corn estimate – – May 12, 2020
[20] ibid
[21] – May 11, 2020
[22] Brazil Continues to Export Soybeans at a Record Pace – – April 29, 2020
[23] Brazil Farmers Locked in Profits on 35% of New Years Soy crop – – April 22, 2020
[24] Ibid
[25] Brazil Soybean Export Pace Intensifies – – April 21, 2020
[26] Inside Agriculture – April 22, 2020
[27] Commodity Round Up – BMO Capital Markets – May 7, 2020
[28] Commodity Round Up – BMO Capital Markets – May 7, 2020
[29] Commodity Round Up – BMO Capital Markets – May 7, 2020
[30] Commodity Round Up – BMO Capital Markets – May 7, 2020
[31] Commodity Round Up – BMO Capital Markets – May 7, 2020
[32] Commodity Round Up – BMO Capital Markets – May 7, 2020