USDA’s first input into the 2020 crop year was not a good one. According to their survey, U.S. farmers intend to plant 97 million acres of corn. That number was well above the average of analysts’ estimates at 94.3 million and a significant 7 million acre increase over 2019. For beans, it was more friendly, with farmers expected to plant 83.5 million, which was below analysts’ expectations of 84.9 million but still represents a big increase from last year’s sowings of 76.1 million. Wheat was not particularly inspiring to either bulls or bears, coming in at 44.7 million acres, only off slightly from analyst estimates of 45 million.
Here’s what we see as the 2020 balance sheets for the coming year and the implications for prices:
Old-crop demand numbers are a big question with the hit that ethanol will take. A 25 percent drop in fuel usage over the next two months could be a reality, and, if so, that means about a 225 MBU drop in corn used for ethanol. Some of that will be absorbed by higher feed use. But old-crop stocks need to go up.
New-crop supplies with normal yields hit 15.5 billion bushels. We expect only modest demand improvement. Pushing stocks close to 3 billion bushels.
December futures prices should be constrained with low $3 a distinct possibility if the balance sheet looks like this next fall.
Old-crop soy sales are lagging, so we put less hope than USDA at reaching their export target. Crush numbers are robust, but trade is where we need to see the business.
2020 should see a return of good exports. China will need beans and the U.S. should be well-positioned to supply during its normal seasonal window. While 2020 carryout isn’t “tight,” it certainly is moving in the right direction compared to 900 MBU two years ago.
November futures prices above $9 are a more realistic environment for this kind of balance sheet.
Old-crop supplies are moving in the right direction; exports are finishing strong.
2020 is set to have another reduction in stocks but the problem is exports.
The classes that are most at risk of losing export share are HRW and HRS.
Hard wheat supplies will remain large absent a production problem.
If ample corn supplies come true, wheat feeding will not be attractive.
Chicago is expected to remain at a premium to KC and neck-in-neck with MN.
$5 new-crop KC is an opportunity, but $4.50 could be around the corner. MN will be hard to push higher; Chicago likely remains supported.
It will be a challenging pricing environment for 2020. Feed and exports will be key to getting some life back to the markets. But even if that happens, the upside should be limited without sizable crop production problems this summer. To get excited about hard wheat, we need a production problem in Russia, the U.S. and/or Canada.
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