We are in a challenging environment today with large supplies of grain and the uncertainty of global trade. This has pushed prices down to a level we haven’t seen in quite some time. U.S. farmers continue to prove they have the skill and resources to produce record crops in what looks to be another consecutive record year. I wanted to touch briefly on what we are seeing in our three main commodities: corn, soybeans, and wheat.
Corn this year is projected to be a record once again. If that happens, it will be the fourth time the record has been broken in the last five years. We are projected to have nearly identical production this year as in 2017 but on one million less acres.
As a result of this large supply, we have seen December 2018 corn futures fall from contract highs in May at 4.295 to contract lows in mid-July at 3.50. This was only forty-five days to see contract highs and lows or a 79.5-cent drop.
We, however, cannot forget the reason we experienced contract highs, which was driven by strong global demand. Even with a record U.S. crop, our global supplies are projected to decline for a second year in a row. In fact, we project a global stocks-to-use ratio at 14.15%, which would be a record low (stocks-to-use ratio is a measure of ending stocks divided by total usage). The prior global record for lowest stocks to use was set in marketing year 2010/11 at 14.19%.
Throughout the last few years as stocks have declined, demand has risen. The U.S. is currently pegged at 11.24% compared to last year at 13.59% and two years ago at 15.65%. This gives me optimism on price, but the markets are volatile. We strongly recommend have a marketing plan target prices set and offers at those levels.
Soybeans are going to be extremely challenging until the global trade disputes are settled. What does that mean for CPI and our patrons? Last year China accounted for 62.5% of all soybeans imported globally. With a 25% Chinese import tariff, this has shifted nearly all of soybeans imported into China to come from Brazil. On average during the last three years, the U.S. has shipped 596 million bushels to China from September through November alone. That’s more than the soybean production of the entire state of Iowa, who produced 561 million bushels last year. So far China has held firm on not buying US beans.
A large share of soybeans produced in North Dakota, South Dakota, Minnesota, and Nebraska is shipped through export terminals in the Pacific Northwest. Of those beans passing through those facilities, nearly all of them end up in China. With the trade disputes in progress, there is currently no bid in the Pacific Northwest. Bids in other rail markets, such as St. Louis, Missouri, and Mexico, have backed off considerably as they are the only rail destinations for beans west of the Mississippi. This has forced bean bids lower at processors and elevators across the Midwest.
Not only are we facing a challenging export environment, but Brazil is expected to increase acres this winter, which will further impact our export opportunities. This is leading analysts to project carryout greater than 800 million bushels versus 430 million this last marketing year. The USDA projects global stocks-to-use at 30%. What’s even more glaring is the U.S. is projected at 18.4% compared to the 7.17% we experienced just two years ago. Global soybean supplies are on the opposite trajectory as corn.
We encourage everyone to have a marketing plan, as this market can change with one tweet. To say we’re in unprecedented times would be an understatement, and we at CPI hope for a quick and open trade resolution to the trade disputes.
Wheat markets have had an exciting summer. There continues to be much talk about major exporting countries having below-average crops. Any way you slice it, there is still a very large global supply of wheat, but enough production concerns have warranted higher prices. The USDA is currently projecting global stocks-to-use ratio at 34.82%, which is very similar to the last two years at 36.87% and 34.83% respectively. This is significantly higher than when you compare it to the likes of corn and soybeans.
Nearly all of the wheat CPI received this year has been priced, and as we look to next year, we highly recommend having a marketing plan in place and offers on the table for the 2019 wheat crop. We have seen several trading days this summer where wheat moves 20 cents or more in that trade session.
Having offers placed allows more peace of mind that your sales targets can be met when you are busy on the farm or asleep at night when the overnight trade is active.
We all know the markets are challenging and can be downright stressful at times. Our origination team, merchandising team, and operations team are here to help. Our originators are on the road daily, meeting with producers like you, visiting on the farm, and setting up short, medium, and long-term market plans. We have cost of production calculators to combine with knowledge of local and global markets to help show what margin is on the farm. We are here to support our mission statement to serve our customers by providing products, solutions and services that enhance mutual success. Our hope is that you have a safe and bountiful harvest.