Report shines spotlight on market headwinds08/12/2019 |
By Bethany Baratta, ISA senior writer
U.S. Department of Agriculture (USDA) reports released today—and the subsequent market aftershocks—served another reminder to farmers of the headwinds they are facing on the farm.
Lower soybean and corn prices after today’s reports are a reminder of crumbling demand for products, said Grant Kimberley, director of market development for the Iowa Soybean Association (ISA).
“Farmers are getting hammered because of all the different headwinds they are facing,” Kimberley said.
“Farmers are getting hurt on the demand side by losing our No. 1 customer, China, due to trade issues. They’re getting hurt domestically because of the EPA’s continued granting of small refinery waivers. The administration’s not following through on what they said in supporting farmers and protecting the RFS [Renewable Fuel Standard]. Instead, the EPA is choosing oil refinery profits over farmer profitability,” he said.
Iowa soybean production is pegged at 502 million bushels, down from 564 million bushels harvested in 2018. U.S. soybean production is forecast at 3.68 billion bushels, down from 4.54 billion bushels in 2018. Based on conditions as of Aug. 1, yields are expected to average 48.5 bushels per harvested acre, down 3.1 bushels from 2018.
November 2019 contracts were down 12 cents at the close of today’s markets to $8.79 per bushel.
Congress could help heal the wounds left by the trade war and waning demand with the passage of the biodiesel tax credit extension, Kimberley said.
An Informa study shows that biodiesel adds 63 cents a bushel to the price of soybeans. An extension of the $1-per-gallon credit to blenders which blend biodiesel with petroleum would help drive soybean demand, he said. Soybean oil is a main ingredient in biodiesel making up over 50 percent of the total feedstock mix, but other agricultural byproducts and co-products like recycled cooking grease, inedible corn oil, canola oil, beef tallow, choice white grease (pork fat), and poultry fat are also used.
Kimberley said the EPA could support farmers by reallocating gallons lost under small refinery exemptions back into future Renewable Volume Obligations (RVOs).
The monthly report added 3.5 bushels per acre to its July 2019 corn yield estimates—now at 169.5 bushels per acre. The numbers pushed December 2019 corn futures down the 25-cent limit on the day to $3.92 per bushel.
The report was somewhat perplexing for Dave Walton, board secretary for the ISA, who was at USDA in Washington, D.C., for the lock-up, where the report was presented before being widely disseminated.
“I’m still scratching my head,” Walton said after hearing the report live. “I’m trying to square the numbers I’ve seen with what I’ve seen in the countryside throughout the Midwest. What they’re telling us and what I’ve seen don’t quite align.”
The USDA pegged U.S. corn production at 13.9 billion bushels, up from 13.875 billion bushels projected during the July report. Even after resurveying growers following late planting, the numbers don’t seem quite right, Walton said.
“They’re looking at farmer surveys, information from the FSA [Farm Service Agency], satellite imagery—using all the tools, and even they [USDA] said information is still trickling in about this year’s crop. My intuition says the tail of this will be bigger and just as long this year; we may not have the best information from out in the field yet to determine this year’s crop,” Walton said.
Cory Bratland, Chief Grain Strategist/Commodities Broker for Kluis Commodity Advisors, expects the corn yield estimate to come down in future reports.
“I don’t disagree that the [corn] crop is starting to look better, but are we only 7-bushels- per-acre less than 1 year ago? Maybe so, but I have a hard time believing that,” Bratland said. “My guess is that this will be high water mark, and we’ll see where we go from here.”
Objective field estimates are expected in September, which may provide a more complete story of this year’s crop, USDA told Walton and other guests at today’s lock-up.
Iowa corn production is forecast at 2.52 billion bushels, up from 2.50 billion bushels in 2018, the report said.
This season’s weather woes are starting to play out in the reports. According to information reported to the Farm Service Agency (FSA), 381,015 corn acres in Iowa fell under prevent planting this year. There were 82,216 acres of soybeans reported under prevent plant this year, the FSA said.
In total, 11.2 million acres of corn were designated prevent plant; 4.35 million acres of soybeans were also reported prevent plant, according to FSA records.
Moving the grain
ISA District 7 Director Jeff Jorgenson said the reports show that farmers can produce under adverse conditions like the flooding he and several farmers worked through earlier this year.
“There’s the slight glimmer that we know how to produce as farmers, but there’s a lot of work to do in moving those products,” Jorgenson said. “We have to figure out how to move more products.”
One answer is the passage of the U.S.-Mexico-Canada Agreement (USMCA), he said.
“At this stage of the game, there is so much unknown in this market, that anything will help.”
Contact Bethany Baratta at firstname.lastname@example.org.
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