Apr 05, 2018
Guest post by Rick Tolman, the former CEO of the National Corn Growers Association. Rick served in that role for 14 years, from 2000 to 2014.
Next month will mark 43 years of marriage between my lovely wife and me. About the time that I got married was the same time that I first started following ag commodities markets.
I do greatly admire those who are not caught off guard by market changes.I can say with some certainty, that despite the number of years I have been following the markets, I am unable to claim expertise or thorough understanding of the mysteries and intricacies of the markets, and am often caught by surprise by them.
This year may not be unlike those in the past in that 2018 has already begun with many significant and perplexing questions that we as farmers should be asking ourselves about the markets.
Just as a start . . .
Will there be a trade war? (All readable signs point to yes. The first shots have already been fired.)
What are the implications for U.S. ag from the NAFTA renegotiation? They are seemingly negative. In general, U.S. ag has done very well with the current NAFTA. It is very hard to imagine an improvement.
Will the RFS be opened and changed? My fingers and toes are crossed on this one - no!
What impact will the drought in South America have? Tighter world supplies and higher soy (and to some degree corn) prices
How will the weather be in the US this year? Most likely as it is every year - geographically variable. Indications by the experts are indicating that it will not as good as it was last year.
Beyond these questions, here are several critical issues for the industry that I am watching this year:
Trade
The saber rattling and announcement of tariffs and counter tariffs, in general, does not bode well for U.S. agriculture - farmers have more to lose than likely gain. The products where the U.S. currently compete well (corn, soybean, animal proteins, etc.) are likely and easy targets for retaliation. Food is strategic and at the same time emotional, and trade disruptions that impact food exports and imports tend to have long tails. They also tend to stimulate domestic production by importing nations to protect their vulnerabilities - history has proven this.
As one large example of the complexities, there is no question, but that China is a bad actor when it comes to trade. But, China is also the current largest overall export market for U.S. agriculture. Even more perplexing - it offers the most future potential.
I will add this: There is a large difference between protecting and protectionism. The distinction is largely subjective. While many support free and fair trade, few want to admit that there are inevitably winners and losers. Wars have been fought over trade. What is occurring at present has incredibly high stakes and implications for U.S. farmers and deserves our closest attention.
2018 Planted Acreage
Two very important USDA reports were recently released. By now, all reading this know what was reported. There were two big surprises in the prospective planting. One was both corn and soy acres projected below 90 million acres. In my opinion, that happening does not seem very likely. I suspect that one or both will still break 90 million. Like most years, weather will be key. An early dry spring favors more corn acres, while a later wet spring favors more soy acres.
The second surprise was the projection for more soy acres than corn. If this occurs, then it will be the first time in 35 years that we will have planted more soy than corn. The market outlook is somewhat more bullish for soy than corn, but see the above comment regarding spring weather conditions, which, I think, will be the ultimate deciding factor.
And keep in mind that the USDA projected sorghum and wheat acres up. Wheat acres are projected up by 3 percent. Despite that increase, it is the second lowest wheat acres since 1919.
Grain Stocks
Not much good market news in the grain stocks report, though both corn and soy stocks are projected up from last year. Corn stocks would be a record level for the March report. Heavy stocks are the biggest factor hanging over the market and holding prices down. On the surface, 2018 looks again to be a challenging year, but all signs point to corn and soy prices being marginally higher in 2018 than 2017.
But there are certainly things to be optimistic about.
Because it appears that planted acreage may be down, and because it is quite likely that yields in 2018 will not quite as good as they were in 2017, the combination of both would lead to a tightening of ending stocks, and as a result, higher prices.
World corn and soy consumption continues to increase. 2018 could mark the first year since 2010 where world corn consumption exceeds production. The domestic and export markets for ethanol continue slow but steady growth and should show slight growth in 2018.
And finally, any world weather event could quickly tighten supplies, sending prices higher. One thing to always remember, the difference between too much and too little in world grain markets is relatively narrow and can quickly turn.
The views expressed in this article are the author's alone and not those of Farmer's Business Network, Inc., its affiliates or members.
Apr 05, 2018