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Veteran Advisor

AFBF Convention Economic Outlook

By David Holley

AUSTIN, Texas — Prices for commodities from corn to soybeans to wheat are poised to get a boost from the new trade agreement signed byChina and the U.S. this week.

Yet caution remains about whether that demand can outpace an expected increase in supply in 2020, after farming suffered a terrible production year in 2019. If a rebound in supply gets ahead of demand, it would mean a “fairly negative outlook,according to John Anderson, the former deputy chief economist of the American Farm Bureau Federation and a professor of agricultural economics at the University of Arkansas. Anderson spoke Saturday during an economic outlook session at the American Farm Bureau’s annual convention in Austin, Texas.

That's ultimately the race that we're always in with these commodities, but that contrast is more stark as I look at it in 2020 than I typically see it,” Anderson said. “There are times in a market when I really feel confident about the explanation I can give about what's going on. This is not one of those times.


Even so, the production issues of 2019 did result in tightening of the ratio of grain stocks to the amount used, Anderson said. Farmers in the U.S. reported that they were unable to plant crops on more than 19.4 million acres in 2019, according to the U.S. Department of Agriculture, the most since the USDA started reporting the figure in 2007. If the newly minted trade deal with China does spark enough demand to outstrip any recovery in that production, that’d mean improved pricing, Anderson said.


Futures prices indicate the market consensus is a moderate uptick in pricing. The potential rise in demand from China due to the trade agreement means there may be more upside than current futures prices imply, Anderson said. That is dependent on changes in production, of course.

If we add another 19 million acres to what we produced last year, we'll be in a pretty tough supply situation regardless of how many commodities the Chinese are willing to buy,” he said.


As for ethanol markets, Anderson said he doesn’t expect to see much change in the use for corn in a way that would impact pricing. Environmental regulators in December kept the minimum amount of ethanol and other biofules that oil refiners must add to the U.S. gasoline and diesel supply at 15 billion gallons, which has been the target for the past two years. Advocates have said the target doesn’t go far enough, as the Wall Street Journal reported.


Even if the rules were adjusted, Anderson said he doesn’t believe there would be much change in corn use, which has been steady since 2011. The economic environment is less supportive now than the years between 2006 and 2010 when corn use spiked dramatically, which was driven both export growth and global production issues, in addition to the implementation of the Renewable Fuel Standard, Anderson said. The oil market is also different now than it was in the early 2000s; whereas a disruption in the Middle East might instantly drive the price of a barrel of oil to $180 from $60, the oil market has done nothing even as there is currently turmoil in Iran, Anderson said.


“I don't care what kind of tweaking we do with the rules, we won't see this kind of rate of change in this or any component of demand anytime soon,” Anderson said. That was a once-in-a-lifetime event.


Anderson said he expects growth in exports of pork, in part due to the outbreak of African swine fever that has killed half of China’s hog herd since 2018. “They are facing a challenge and it has some potential to be very beneficial to our markets,” he said.


The 2020 American Farm Bureau Convention kicked off today in Austin. We will have full coverage of the event, through Monday.




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5 Replies
BA Deere
Honored Advisor

Re: AFBF Convention Economic Outlook

Some of what I gleaned from Market to Market  and USFR. Something about Mexico could approve higher ethanol standards in their fuel and might import E from US.   Naomi Bloom says when USDA sees the 2020 crop is out of starting blocks, perhaps they`ll fess up to the true size of the 2019 crop.  10% in the field yet, I recall as a kid we once picked in the spring and it was a wet spring, with the standing corn it wouldn`t dry the ground (no wind or Sun) so on that field we were delayed into June to plant.   That could be a issue.

On USFR the experts thought more was read into the phase one details than should`ve.  China will buy just not right away..possibly waiting for dips.  Something about delaying pork buys until after their new year.

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Senior Advisor

Re: Oh come on, let's at least be honest here.

Oh come on, let's at least be honest here.  Quote: " If a rebound in supply gets ahead of demand, it would mean a “fairly negative outlook,” according to John Anderson... "

  First, the supply-demand imbalance is entirely due to the trump administration's mishandled trade war and ethanol policy. If China had purchased their usual amount of soybeans these past two years we wouldn't have had a 1000 million bushel beans stocks they would have been more like 100 million bushels.   With a 100 million bushel stocks and a 20% drop in 2019 bean production, soybeans would have been closer to $14 per bushel, not $9.

   Likewise, if the corn to produce that 4 billion gallons of ethanol had been used (2 billion bushels), that 1.8 billion bushel carryout would have been a lot lower given this year's 13.6 billion corn crop.  Lower, like in, we wouldn't have any carryout and it that case corn would be closer to $5 than the $3.50 it currently is.

  The truth of the matter is, the American Farm Bureau has consistently pandered to trump and farmers have been the losers for it.


BA Deere
Honored Advisor

Re: Oh come on, let's at least be honest here.

Corn used for ethanol doesn`t totally disappear after it becomes fuel, there are DDGs that then compete with feed corn. 

If Brazil hadn`t sold soybeans to China, then those unsold beans would be hanging over the market in world stocks.   Gurus would cry "World awash in soybeans!".   Unsold beans aren`t dumped in the ocean at the end of the year. 

Re: Oh come on, let's at least be honest here.

According to the post 19.4 million acres not planted this year most would say much more.  So, there would not be 19.4 mil. Acres added, they were there planted every other year just not the current.  These unplanted acres had little to zero effect on the market, so if that math works it would in change have zero effect this year if they were planted correct? Agree to disagree I also believe without the current trade dispute prices would and should be much higher than even what rick was suggesting.  8 bill.  the first year in payments 10.4 I believe this year, far below what was promised and extremely lower than what it has cost us. Realistically upwards of 50 billion in losses most likely.

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Senior Advisor

Re: It's not just how many beans there are in the world, it's where they are that counts as well.

It's not just how many beans there are in the world, it's where those beans are that counts as well.  Hog farmers in the Midwest and chicken farmers in Georgia aren't likely to import beans from Brazil, they will pay more to secure local supplies. And the reverse was clearly demonstrated with the basis in the upper Midwest.  While beans in Brazil were sold at prices well in access of $11, the basis in North Dakota pushed prices well below $7.  That a $4 difference, easy.

As far as DDGs competing with corn, at 27-28% protein, DDGs competes with protein sources like soybean meal, etc. not corn, as you can clearly see from the chart below.

DDGS vs corn.png