Alex Norton, Beeson Inc.
On Monday, the U.S. Department of Agriculture will release its monthly World Agriculture Supply and Demand Estimates Report. This particular report will hold a lot of vital information for the market. Not only will yields for major crops be adjusted (typically August is when spring crop yields begin to really take shape on the government-released balance sheets), but planted area for spring crops will be adjusted as well.
Trade negotiations between the world's two biggest economies had been stalled since May. Ahead of last week's trade meetings with China, President Trump made threats against the Chinese avoiding a trade deal during his first term, saying the negotiations would get tougher in his second term if they were hoping to deal with a different U.S. president.
Here are just a few of the things that are going on with commodity markets. U.S. planted acreage for spring crops is still not known due to an extremely wet spring. China's trade relationships with the U.S. and Canada are being hampered by geopolitical tensions. Aid payments to U.S. farmers have been uncertain until details were released this week by the Department of Agriculture. Yet the key market driver is the weather (which is always the case in July).
The narrative all spring and into the early part of the growing season had been about the U.S. Too much rain for too long was the story, leading to late planting, re-planting, and abandonment. The U.S. Department of Agriculture still is unable to deliver planting data as the June survey of farmers did not have actual planting reflected in all areas.
The monthly U.S. Department of Agriculture report on domestic and global supply and demand estimates held plenty of surprises for the market. The World Agricultural Supply and Demand Estimates Report showed global stocks of wheat coming down significantly from the previous report, as weather issues in top producing countries have trimmed yield expectations. Russia, Canada and others all had stocks trimmed, leading to higher expected exports for the U.S.
Corn acres will be down more than 10 million from March U.S. Department of Agriculture intentions data. More corn is going in the ground over the last couple of weeks. Growers are dealing with two contradictory ways of looking at the situation: Prevented planting is the best option for most farmers instead of switching to soybeans; or payments from the government in a Market Facilitation Program will offset any production losses, so farmers should plant something.
The U.S. Department of Agriculture had a big week. To the lay-person, the government agency made headlines for announcing a move of key departments (the Economic Research Service and the National Institute of Food and Agriculture) to Kansas City from Washington D.C. Employees turned their back on Secretary Sonny Perdue in silent protest at a meeting this week. But of greater, near-term consequence to agriculture markets were the changes made to the corn balance sheet for new crop.
Corn planting in the U.S. is delayed. Very delayed. Historically delayed.
On Thursday, the U.S. Department of Agriculture announced its plans for farmer aid as a result of the ongoing trade war with China. An aid package was utilized last year to bolster farmers hurt by the lack of demand for many agricultural products (primarily soybeans, though not exclusively), and a similar $14.5 billion aid package was announced earlier. But details were not discussed in the initial announcement, and so the prevailing thought in the market was that payments would be made to specific crops.
It definitely took a while. The market had been trending lower for weeks. Pressure had come from the ongoing and intensifying trade war between the U.S. and China, as well as diplomatic tension between Canada and China. On top of that, huge supplies of grain and oilseeds domestically and abroad had kept pressure on. Speculative funds were holding incredibly large short positions for corn, wheat, and soybeans.