Supplies Not Tariffs Drive Grain Market Slump
Jul 11, 2018
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Are tariffs killing the corn and bean market? Not as much as the mass media might lead one to believe. Trade concerns are certainly not helping the market, but it’s also not fully to blame for the recent collapse. We discussed this in our recent Brock Market Edge webinar—here’s a summary of why there’s more to the recent swoon than tariffs:
Acres. Corn and soybean acres were raised in the latest USDA report. More acreage equals more production. Producers and traders were scratching their heads at the spring acres. Twitter in particular blew up jokes about the vanishing acres. Therefore, I don’t think it is a big surprise acres were increased in Friday’s report.
Weather. Missouri farmers have complained about dry weather, but the major corn-growing states are overall pleased. I spoke to farmers in Indiana and Illinois last week that were thrilled with the crop. My farming area in Kentucky isn’t statistically helpful, but we’re in great shape here. Hot weather in July is normal, and there’s no sign it will be worse than normal—in fact, temperatures should not be overly hot in mid-July.
Crop Ratings. Ratings are high, but there’s a poor correlation between ratings and final yield. If you’ve ever tried to estimate the yield from the field, you know how hard it is. And if it’s difficult to pinpoint yield with boots on the ground, imagine the difficulty of using a statistical approach. Still, ratings are weighing on prices.
Grain Stocks. It has been 30 years since this much corn has been in storage. I imagine Scrooge McDuck diving into a pile of corn instead of gold. Also, Soybean supplies are at record high levels—even though they're mostly stored off-farm. Soybean usage has been strong, but not strong enough to eat up this supply.
I think this is an important discussion to share with landowners too. A landowner on crop share called me last week. She asked if she would get any money for her beans because of tariffs. I assured her it would be okay. Those that aren’t as familiar with how trade works think the tariffs will make crops worth nothing—not true! As I’ve heard a farmer friend say, we’re lucky to have plentiful buyers to take our grain. Sure, the price may be lower, but it has a home.
It’s not all doom and gloom. Dad always valued grain marketing, but pointed out you need yield. Anything times zero is zero. No yield, no money. So, those with high yields we will be okay at current price levels. I am thankful to have followed marketing advice to sell a large percentage early, but those who didn’t may still be okay.
Regardless of tariffs, we have a large supply in storage with a large crop to come. Hopefully, politics will be neutral to supportive as the discussion progresses. Weather will be the key going forward.
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