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Review of Agricultural Commodity Prices

Corn
Corn prices fell in September 6% from August, but are up 14% from year ago levels.  The September 30 Grain Stock report was bullish for con as old crop corn stocks were much lower than the trade expected.  However, the October World Agriculture Supply and Demand Estimate (WASDE) was negative for corn as the USDA increased yields to an estimate of 168.4 bushels per acre from 168.2 bushels per acre.[1]
 
Any advance in U.S corn price will likely be limited as there are substantial South American supplies of corn.  Any supply issue in the United States due to poor yields, will lead to higher corn plantings in South America.
 
The key drivers to the corn price this month are 1) corn yield estimates continues to be strong given the difficult weather this Spring 2) US-China trade negotiations, 3) ratification of the USMCA which Congress looking to make substantial change s to the agreement, 4) the strong US dollar and 5) poor ethanol margins around the World.
 
Corn yield estimates as noted above are still very high and only 7 bushels per acre lower than last year’s record of 175.  Given the weather was exceptional last year, it is truly extraordinary that this year’s crop not estimated to be substantially lower. 
 
Although a U.S.–China Trade Deal (“Phase 1”) seems to be on track, until it is finally signed and China has agreed to buy agriculture commodities, the market will move off of rumors and thoughts.
 
The USMCA agreement will be impacted by the impeachment hearings.  Although impeachment should move quickly through the House of Representatives, it is unclear when it is settled if the House Democrats will want to move with this in an election year.
 
U.S. corn exports continue to be limited by a strong US dollar, large South American supply and limited European purchases of U.S. corn given the large Ukraine crop.[2] None of these issues will be resolved in the near future which will be positive for corn prices in North America. 
 
Plant closures in the ethanol industry continue with many North American plants posting negative margins at present. 
 
Result: It is tough to see corn rallying in the near future. 

Soybeans
September soybeans prices increased 3% from August and up 5% from year ago levels.  The rally principally occurred due to stronger exports to China. 
 
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 has been slow by historical standards.  To October 23, 2019, soybean planting in Mato Grosso do Sul was the slowest recorded in 5 years due to dry weather.[3]  In all of Brazil, as of October 22, 2019, Soybean plantings are 21% versus 34% recorded at the same time in 2018.[4]  A delay in soybean planting does not necessarily mean lower yields, but it does increase the risk for lower yields if there is adverse weather later in the year.
 
It is also unclear how much of the soybean crop will finish and be harvested as the potential for snow increases as we enter November.  This will impact soybean prices on a day to day basis. 
 
 
Result:  The outlook for soybean prices is better now than it has been in previous months.
 
Wheat
Wheat rose 1% August but is down 5% 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.  The USDA is projecting a global ending stock estimate of 765.2 million metric tons, an increase of 34.7 million metric tons year over year.[5]   Wheat could see some volatility in the near-term as the Buenos Aires Grains Exchange has lowered the Argentina wheat estimate from 21 million metric tons to 19.8 million metric tons, however the USDA has not changed their estimate (at 20.5 million metric tons).[6]
 
Result:  With such large supplies of wheat around the World, is it tough to see wheat rallying. 
 
 
[2] Commodity Catch up October 16, 2019 – BMO Capital Markets
[3] Soybean and Corn Advisor – www.soybeansandcorn.com - October 23, 2019
[4] Soybean and Corn Advisor – www.soybeansandcorn.com - October 22, 2019
[6] Commodity Catch Up – October 16, 2019 – BMO Capital Markets.