Accounting for Weather Ahead of Corn & Soybean Plant 2019
Through the middle of March, corn and soybean prices continue to be challenged by talks (read: rumours) of trade war negotiations and increased weather volatility. While we’ve seen some swings higher and lower throughout the course of the first calendar quarter of 2019, corn and soybean prices aren’t all that different from where they started the year at.
While the mid-March snowstorm and flooding across the American Plains was scary to experience, let alone watch from afar, it doesn’t look like the volatile weather is done yet. The National Weather Service says that water levels are expected to rise throughout this week and into next as the combination of melting snow and rain has overcome levies and dams to create a wide path of destruction, especially in Nebraska. Today, I think that the market is starting to factor in some of this volatile weather, especially since it’s expected to continue through to the end of March.
Worth mentioning is INTL FC Stone’s most recent acreage estimates for Plant 2019. They’re forecasting corn acres seeded in the U.S. will come in at 90.4 million while soybean acreage will only drop to 87.7 million. For the record, out of all the estimates available, this is the highest number for soybeans and the lowest for corn.
For comparison, the last acreage estimate from the USDA at their February Ag Outlook Forum in February was for 92 million acres of corn and 85 million acres of soybeans. For perspective, American farmers planted 89.1 million acres of corn and 89.2 million acres of soybeans last year. We’ll get the next Prospective Plantings report from the USDA on Friday, March 29th at 12PM EST.
March’s Weather Brought Good and Bad
One thing can could potentially lift corn and soybean prices higher is the risk that this recent weather is bringing to the start of Plant 2019. This winter has surely been one of the more extreme ones for most of the American Midwest as the region continues to get regular dumps of precipitation. When all added up though, for a lot of North Dakota, Wisconsin, Iowa, and Illinois, this winter has been one of the wettest (read: combination of rain and snow) in nearly 130 years.
This includes last week’s major storm that caused white-outs in the north and flooding through the Cornbelt. Of course, this has had a very detrimental impact on calving season. The subsequent question is whether these acres will get dried up in time for optimal seeding dates for Plant 2019.
Moving forward, it’s expected that the volatile weather will continue through to the end of March. This confirms the theory that I posited last week that a solid start to Plant 2019 was becoming less of a certainty and more of a question mark. That being said, we need to stay on top of our grain marketing as the highs of the market usual appear some time between late May and early July. At this point though, it’ll likely be a “wait-and-see” approach with a hope that warmer temperatures in April will be above-average and fields will dry out faster.
WASDE Changes Weather Corn Prices
In the March WASDE report on Friday, March 8th, corn markets saw the most surprising changes and the impact was fund speculators increasing their net short position to the highest in at least five years. This could be blamed on seasonality but also that the USDA raised 2018/19 ending stocks by 100 million bushels thanks to exports being reduced by 75 million bushels and ethanol demand by 25 million bushels.
Worth noting on the ethanol front is some of the work by the Trump administration pave the way for ethanol sales and blending to take place year-round. Ironically, it was just announced that, in 2018, ethanol consumption fell for the first time in 20 years. This was as the overall gasoline blend rate dropped from 10.13% ethanol in 2017 to 10.07% last year.
The reduction in exports is especially surprising considering that U.S. corn shipments are tracking 34% ahead of last year, despite the USDA calling for a 2.6% decline year-over-year to 2.375 billion bushels. As Argentina and Brazil are expected to harvest 46 MMT and 94.5 MMT of corn respectively, it seems that the USDA is expecting U.S. corn to start losing market share over the next few months.
Conversely, U.S. soybean were stayed at 1.875 billion bushels. This would be a 12% decline year-over-year. However, through Week 27 of the 2018/19 crop year, actual soybean shipments are tracking 31% behind last year’s pace.
Given some of the record soybean processing volumes we’ve seen the last few months, it was no surprise to the market that the USDA increased U.S. domestic crush by 10 million bushels.
Opposing Weather in South America
In South America, the USDA lowered the Brazilian soybean harvest by 500,000 MT to 116.5 MMT thanks to the drier-than-normal weather they’ve experienced the last few months The market was expecting 115.7 MMT though, a number that’s more in line with the 114 – 115 MMT that many private forecasts have on their balance sheet. Good weather recently though in Brazil has helped accelerate the soybean harvest.
In neighbouring Argentina, the USDA kept the soybean harvest there at 55 MMT. Separately, Rosario Grains Exchange revised their estimate of the country’s soybean harvest to 54 MMT, up 2 MMT from the previous estimate thanks some ideal weather lately.. Comparably, Buenos Aires Grains Exchange is still at 53 MMT. While these volumes are a significant rebound from last crop year’s drought-riddled soybean harvest of 37.8 MMT, it might not be enough to reignite the country’s processing capacity, which is currently forecasted to be operating at about 50%.
Thanks to the trade war between the U.S. and China, it’s been more lucrative for Argentina soybean players to export the raw product, versus processing it. Case in point, Argentine soybean exports should reach 16 MMT this crop year, up from the usual 10.5 MMT. Conversely, exports of soy byproducts (soy oil and soymeal) should fall to 35 MMT from the 42.5 MMT normally shipped out.
If you’re already reading between the lines, this month’s WASDE report didn’t help grain prices get out of its current rut. With the market quite oversold (read: sitting in a net-short position), the fundamentals are seemingly continuing to defer to any action between China and the US in terms of a trade war deal finally getting done.
Why Care About Weather When There’s A Trade War?
On the trade war front, President Trump says that “probably one way or the other, we’re going to know over the next three or four weeks” if a deal will get done with China. Weather aside, whether or not a trade war deal is made can have a pretty significant impact on what final acres will be for Plant 2019.
If you do see a deal made before Plant 2019 starts in the U.S. Northern Plains, it’s very possible that all those once-lost soybean acres that were supposed to get planted into wheat, may go back to getting seeded with the oilseed. This will, of course, depend on the spring weather and if fields can dry out or not. Regardless, for some American farmers though, they see soybeans still as the more profitable crop and will plant it with or without a deal to end the trade war.
Put another way, there’s not a big soybean market in places like North Dakota and Minnesota if there’s no demand out of the West Coast. If that returns, so does the likelihood of 2019 soybean acres in these fringe states being closer to what was planted in 2018. In turn, that means less wheat. Regardless of what types of crops you grow, some good spring weather will certainly be needed to hit some optimal seeding dates.