Crop price outlook is confusing
Trying to make sense of commodity prices, always difficult, might be especially confusing right now. A North Dakota Sate University Extension specialist examines the outlook.
China, COVID-19 and ethanol are all influencing crop prices and causing confusion, said Frayne Olson, North Dakota State University crops economist/marketing specialist.
"One of the challenges we have in today's world is information overload. It's really hard to filter out and say what are those nuggets of information that I really need to focus on, or those things that will have an underlying influence on market prices vs. the market jargon for the day," he said.
"The confusion is all over the place," he said.
Olson spoke Sept. 16 during an online marketing seminar organized by the Minnesota Association of Wheat Growers and North Dakota Grain Growers Association.
There's uncertainty about U.S. crop yields, especially after a mid-August windstorm ravaged many fields in Iowa. Even so, "we're looking at an average corn yield this year nationwide. We need to remind ourselves of that," Olson said. "Even if we take a little bit off the top end of corn (yield) nationally, we're still going to have a lot of corn this year."
"To be really blunt and honest in the big picture of supply-demand, this (damage from the Iowa storm) is going to be relatively small," he said. But the damage does make a difference to farmers' bottom lines, because even small changes have an impact.
Olson noted that while the U.S. Department of Agriculture frequently is criticized for its crop production estimates, "USDA does a pretty good job of honing in on what that final yield will be. ... At this stage of the game, I would not be betting against USDA numbers."
On the demand side, U.S. grain exports have slumped in recent years, but are expected to rebound next year. "A lot of that is because of China," a leading buyer of many U.S. ag exports, Olson said.
The so-called phase one trade agreement between China and the U.S. includes agriculture.
"One of the chapters in that agreement was talking about agriculture and removing some of the barriers to agricultural trade between the U.S. and China.," Olson said.
That's boosted Chinese imports of a number of U.S. commodities, including soybeans, meat and corn.
Lower production of U.S. ethanol, which is made from corn, also has worked against demand for corn in recent years. Ethanol production has rallied somewhat, but probably won't rebound fully until 2022, Olson said.
"So don't count on the ethanol industry to suddenly have a big rebound and boom and be able to suck up all this extra corn we're going to be producing," he said.
COVID-19 adds to the confusion.
"There's a huge discussion yet about COVID-19 and the impacts on not only the U.S. economy but globally," he said. For example, Mexico, the top buyer of U.S. corn, is in economic recession.
Olson said he has long-term concerns about how the global pandemic will affect the economies of Mexico and other top buyers, and consequently affect how much U.S. corn they import.