It is hard to believe that it has been a year since the Top Producer Conference of 2018 and we just finished the 2019 version. Once again a well-attended conference with a lot of good information, including presentations by Jamie Wasemiller and Jeff Beal, both associates with Gulke Group who gave insurance outlook (Jamie) and a look at the market outlook to Young Producer (Jeff). I gave the macro outlook on Thursday morning, my 22nd I believe, but ran out of time of course. I’ve presented at every TP Conference and have the most seniority, including upper management. It is probably time for the last roundup?
There were bearish outlooks as well as a bullish presentation billed as the “only bull in the room” which I was unable to attend but likely well represented as producer like to hear good news. Perhaps the thing that worried me the most was that I actually agreed with some of the analysis. There were some things that were not touched upon in by previous presenters that I thought relevant and pertinent to any outlook, bearish or bullish. I’ll review a few with comments.
- Soybean global demand has been increasing at a 5-8%/yr. compounded, and that trend was extrapolated by the trade to believe that the tariff would be short lived as China needs our soybeans.
- That has proven to be incorrect as China was well prepared to react on Trump’s promise to negotiate a reciprocal agreement and China prepared will through alternative sourcing and cutting protein rations revising China’s needs from 95 mmt to 85 mmt leaving the US holding the bag on 10 mmt (370 mil-bu)
- 40% of 10 yr. global increase in demand was from non-China sources. This means everyone was using a little bit more but China was the big gorilla. It was hoped that that US would garner demand from former clients of Brazil. This caught some commercial traders long futures and short basis when in fact basis explode while futures. Those believing that myth were caught long and wrong and it took a while to unwind those positions while futures drop $1.50.
- China’s buying spree post December 1 then caught Brazil markets by surprise collapsing basis as futures rose. They couldn’t have been more wrong and it caused a lot of pain, just read Bunge’s explanation in their Q4 results.
- New sources of protein was sought out by China but the good news is they are in a latitude not much unlike northern North Dakota. Yearly weather can be fickle causing production disruptions--- so when/if global demand increases enough to offset our losses in Chinese business, we may see more equilibrium in supply and demand.
- When will non-Chinese increase enough to offset the Chinese void?
- Our studies show it could take 3-4 years
In the whole process that has developed there are some macro questions regarding the implications of the soybean tariff that I am not sure weren’t missed by the administration or in fact merely overlooked by the media trade.
- Protein Demand fell + substituting alternatives (9 meals)
- China reduced formulations. What is ultimate influence of Swine Disease?
- Soy demand 85 mmt from 95-102
- Global perspective changed--- y-y increase less now that may affect long term outlook
- We may have lost the 800# demand gorilla?
- It appears that economists are focusing on US price relationships between corn and soybeans to predict what price should be as a comparison and ignoring global outlook.
- It seems currently US analysts blinded by global impact replacing reality with the hope phase of the creed, hope, fear cycle that has yet to play out. Lots of belief that “something” will happen to make things great again.
In the absence of USDA fundamental news on exports, production estimates and other items so many have become accustomed to or have hidden behind, it leaves price action and analysis of that price action to serve as an aid. Unfortunately few in the media are doing so. For what it is worth, here is the current situation for corn and soybeans from a weekly perspective.
Note Dec 2019 corn is at about the same level it was back in May before the brunt of the tariffs and at the point that was the low side of the long sideways trading range from June 2017 to May 2018. Lows were put in July and September much before the bulk of harvest and again for the third year, played havoc with commercial buyers thinking they could buy farmer mistakes. Corn has trended higher with higher and higher weekly lows but stopped at overhead resistance near $4.00. One has to really question what is going on if/when Dec corn closes above those tops? In the meantime, a pricing wedge is being formed suggesting something is going to happen on or by March 1? Will China surprise? Or will USDA finally release two months’ worth of data –pro or con.
SOYBEANS for Nov 2019 have performed similarly with overhead resistance at what used to be former pre-tariff support. Quite honestly, President Trump could look at this chart and say, “I made soybeans great again and gave the farmer another opportunity to sell at a price that would have been there anyway without China as high yield and acres would have been price negative anyway—So I owe soybeans nothing! In addition the $1.65/bu payment made the soybean farmer more than whole. There are still the normal complainers out there that CNBC has sought out to give a one sided crying job stating there is no market for US soybeans! One has to wonder what is said secretly behind closed doors of the administration. When corn was $5-$6 I met with the then Secretary of Ag and discussed the negative aspects on my prices if the USDA would open CRP to production. His response at that time was, “Jerry when is enough, enough? At $4 they wanted $5. At $5 they wanted $6 and then $7, when is enough, enough and there won’t be a buyer for $7, $6 and $5 corn”? I have never forgotten that lessen and price history says why. It is always good to put yourself in the place of the guy who is going to use your production whether it is corn or beans. High prices invite competition and reduce demand and as a monthly chart shows for corn and beans, we’ve paid the price for a six years. Have we learned anything?
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