Wheat exports flagging; corn exports flying
Demand has been strong as of late for corn and soybeans, but the export picture is getting cloudy again.
Demand, or the lack of demand, has been one of the major attention getters for ag products the past few years. The lack of wheat export demand has resulted in wheat prices declining to the point that winter wheat acreage dropped to lows not seen in 110 years. But that still is not enough to help support the price or encourage interest in U.S. wheat.
There are six regions that are the main exporters of wheat: Russia/Ukraine (Black Sea), the European Union, Argentina, Australia, Canada, and the U.S. Russia has turned from being one of the major importers of wheat (in the 1970s to 1980s) to being the largest exporter. For the U.S., wheat is an export-dependent market, which means we have to export somewhere between 30% to 50% of our annual production.
Corn is not an export dependent market for the U.S., meaning the U.S. uses most of the corn produced domestically. Most of corn’s demand is chewed up as feed or turned into ethanol . But in large production years, the U.S. needs to move about 15% of its corn crop through exports. There are only a few players in the corn export market: U.S., Ukraine, Brazil, Argentina and South Africa. The major buyers of U.S. corn have been Japan, Mexico and of late China.
July 2020 was a record setting month for U.S. corn exports. Reports through July 23 had sales of corn at 5.1 million metric tons. The last 10 years, July sales have averaged only 5 million metric tons. By the end of the month, another record sale of corn to China was announced, pushing the month total over 7 million metric tons, with two of the largest sales in history for corn taking place in July (one was for 1.76 million metric tons and the other was for 1.937 million metric tons). Through the end of July, China’s 2020 corn purchases were at 5.7 million metric tons (roughly 225 million bushels). China is estimated to only import 7 million metric tons of corn in 2020. If so, most of their needs are already on the books with the U.S. Traditionally, Ukraine ships China 3.8 million metric tons of corn, but that might not be the case this year. Mexico purchases were between 2.5 million metric tons and 3.5 million metric tons and Japan had less than 2 million metric tons on the books.
Like wheat, soybeans are an export dependent market for the U.S. The major uses for soybeans in the U.S. are split between crush (which has been consistently been setting record levels) and exports (which have been faltering in past few years). Through July 23, U.S. soybean export sales for July were at 7.6 million metric tons, double the 10-year average for the month. And in the last week of July another 3.34 million metric tons of soybeans were sold, making this one the strongest months for U.S. soybeans sales in eight years. It stands to reason that the U.S. has seen strong soybean export demand as the U.S. has the cheapest soybeans in the world right now. So far to date, China has spoken for 59% of the U.S. 2020 soybean exports while an unknown destination is in for 37% of the sales. Traditionally in an average year, 75% of Brazil’s exports and 60% of U.S. exports go to China.
But the export picture is starting to look a little cloudy. China and U.S. tensions are increasing. Rumors have President Donald Trump wanting to cancel the phase one trade deal before the election, which would result in the return of tariffs and a dramatic decline in ag exports. U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu are set to meet Aug. 15 for a six-month review of the phase one trade agreement The pandemic has put China behind on purchases but has made a strong push in July toward reaching those levels.
This puts that much more emphasis on production and the 2020 crop year looks like it could be a strong production year.
The Aug. 3 Crop Progress report was mostly negative to the market, but traders are still overestimating progress. The average trade estimate had spring wheat harvest at 11% complete when the actual estimate was 5%. Traders had winter wheat harvest was at 89% complete but it came in at 85% completed. The slowdown in harvest is mainly due to slow progress in the Pacific Northwest: Washington, Oregon, Idaho and Montana.
This week’s crop condition ratings were not as bearish as last week, but still negative as most came in better than expected. Spring wheat conditions were estimated at 73% good/excellent, 3% better than expected. North Dakota conditions improved 4%.
Corn’s crop condition rating was as expected, unchanged at 72% good/excellent. All of the major states had their ratings unchanged or slightly better compared to last week, except Iowa where conditions dropped 4%. Drought continues to be an issue in Iowa and one that bears watching as it appears to be getting worse. Silking continues to be ahead of average pace with every state ahead of their average five-year pace except Pennsylvania and Tennessee. This is the fifth best rating for corn for this time of year in 16 years as the good to excellent rating is 9% above the 10-year average.
Soybean conditions were better than expected as well. The average trade estimate had soybean conditions unchanged from last week, instead conditions improved 1%. Just like in corn, most of the major producing states saw their rating either remain steady or improve, except for Nebraska which was off 1% and Iowa which saw a decline of 3% from the previous week. In general, the soybean crop condition rating for July was the best for that month in 26 years as the good to excellent rating is 12% above the 10-year average. Pod setting continues to outpace the five-year average pace by 5%.
Wheat is seeing seasonal pressure as the winter wheat harvest nears completion and the spring wheat harvest gets under way. A weak dollar has been helping to stabilize wheat, but with only routine export demand, it will be tough for wheat to see any major run. The selling pressure last week was enough to push Minneapolis and Kansas City to new contracts lows while Chicago remains in the bottom of its recent trading range. Gains in wheat are also being limited by reports that Brazil and Canada could be seeing a record wheat crop as well as from conflicting production reports coming from Russia.
Corn also has broken through its contract low. Conditions continue to be better than expected and with most traders expecting the U.S. Department of Agriculture to increase yields in their Aug. 12 Crop Production estimate, it will be tough for corn to push higher, unless a weather issue develops.
Soybeans are still holding weather premium, and with the balance sheet a little tighter for soybeans it is likely this market will continue to hold a weather premium into the end of August. There is a slight concern with the long-term forecasts as the eight-to-14-day forecast is calling for hot dry conditions to return.
The one item that might help grains shake off all of the negativity is inflation. It appears that the market is trying to deal with some sort of inflation, or at least traders are acting like inflation is on the horizon. Either that or traders are returning to the old style of trading, buying tangible items in times of crisis. Gold is at all-time highs with all contracts above $2,000 per ounce, and the market does not appear to be slowing down. Silver is hot on gold’s heels. The stock market is at or near its recent record highs, and the dollar is at multiple year lows. If inflation occurs, will it have enough strength to raise all markets?
Cattle continue to show signs of strength. Cash remains the driver with this week’s activity taking place between $99 and $100, $2 to $3 above last week. Feeder cattle feedlot demand continues to improve as feedlots are aggressively trying to keep lots full due to lower feed costs and strong live cattle bids.
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