TOP FARMER WEEKLY PERSPECTIVE 6/12/20 BY BRYAN DOHERTY
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This month’s USDA World Agriculture Supply and Demand Report (WASDE) for corn and soybeans were about as neutral as one could expect. While it’s common to see neutral reports in June (there just isn’t much crop information to provide for changes to expectations for the upcoming growing season), thoughts that demand could change due to COVID-19 and an energy price war didn’t appear to be reflected in this month’s numbers. No changes were made to yield expectations, which is reflective of a typical-type spring, in which the crop is planted, yet isn’t far enough along in growth, or there isn’t enough adverse weather during planting to suggest changes. Likely, adjustments will occur in the months ahead.
Projected carry out for the 2020-2021 season for corn came in at 3.323 billion bushels versus last month’s 3.318. Ethanol usage remained unchanged at 5.2 billion bushels for the year ahead, perhaps a surprise, since most analysts were thinking of a downgrade of at least 50 million bushels. Exports for the year ahead also remained unchanged at 2.150 billion, an increase from the 2019-2020 figure of 1.775 billion. In our opinion, it appears that an increase of near 400 million bushels could be a bit robust. It is likely that the USDA is using a model that suggests increased exports due to decreasing prices. Additionally, South America has had very good corn crops in recent years, and expectations for that to continue might be too optimistic. As for soybeans, projected carryout dropped from 405 million bushels to 395 million, a slight decrease for the year ahead. With the export pace slow, due to COVID-19 and economic concerns, the small reduction was viewed as slightly supportive.
In the next 60 days, the market will get its information to determine price direction. While today’s reports had little impact, additional reports at the end of the month could have more influence. These are the quarterly stocks and acreage reports. It is likely a downgrade in corn acres and an increase in soybeans will occur. This comes from pure economics, in that corn prices (after turning lower in March and early April) may have had farmers switching to less expensive soybeans. Yet the more dominant factor in the days and weeks ahead will be weather. Some forecasters are calling for a very warm and dry July. Markets tend to move on perception, and if this forecast stays intact and the market perceives declining yield potential, it won’t take long for prices to rally. Those who buy grain/oilseeds should have their needs covered through cash contracts or use of call options. For growers, expect that weather will likely be more normal than not, and this implies prices will work lower. Additionally, if the USDA were to make downgrades to projected demand in the months ahead at the same time crop conditions are favorable, prices could slide as supplies grow. Purchasing puts to establish a price floor is suggested. Our encouragement is for you to be prepared for market movements that could affect your bottom line, and utilize the right tool to maximize your risk preparedness or to take advantage of opportunities.
If you have questions or comments, contact Top Farmer at 1-800-TOP-FARMER extension 129. Ask for Bryan Doherty.
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