Weekly Market Update With Lilja, Progressive Ag
An old farmer once told me that the difference between too little and too much is a very fine line. We’ve witnessed that with the grain markets in 2020. From March through August all we heard about was big incoming yields and lower demand due to COVID. Almost everyone was convinced that we were going to have “too much” plentiful stocks. Things have changed very dramatically in
the last 8 weeks and the market is starting to act like we may have “too little”. It started with some Chinese flooding, then we added a splash of Iowa storms. Before you knew it southern Russia and the Ukraine saw little to no rainfall and neither has much of the US southern plains. Add a developing La Nina weather pattern and prospects for a drier South
American growing season. Then you top it all off with a government that can’t count by revising grain stocks drastically lower in the quarterly report and we have a major change in the 2021 outlook.
The USDA cut corn stocks 248 million bushels and soybeans 52 million bushels more than expected in the quarterly stocks report. This leaves corn carryout at 1.995 billion bushels, over 10% less than expected. In March and April there were analysts projecting over 4.2 billion. We’ve cut some of those lofty projections in half!!! In less than 6 months!!! For the record, I never thought we’d get over 4 billion because the market simply wouldn’t allow it. And it didn’t. Prices were so low and so dismal this spring that farmers opted to plant a lot less of it. But that’s on the crop coming in. The bigger head scratcher is where could all of that old crop corn have gone? It means that after exports and ethanol usage are counted feed usage is the only unknown category. So that
means summer quarter feed usage was much higher than expected. Pasture and Rangeland conditions in the western US have seen rainfall 50-75% of normal with temperatures 5-10 degrees above normal. The latest Cattle on Feed Report showed placements into feedlots much higher than expected. So the pastures were burning up and more corn was fed to animals for a longer period of time to finish them. If the US drought monitor continues to expand in the southern plains, corn feeding for at least the next two quarters will continue
higher than expected. We could cut another 250 million bushels per quarter if drought conditions continue. That would be another 25% cut in the next 6 months. Maybe the US government can count.
The soybean outlook is equally friendly. The Chinese hog herd is looking at expanding by one third after its recent bout with African Swine Fever. To put that into context the US hog herd is around 70 million head. Before African Swine Fever the best estimate on Chinese hog herd size was around 500 million. That’s a lot of soybean meal and a
lot of corn. The real reason the Chinese weren’t buying soybeans from us over the past couple years was that their hog herd was decimated. But the Chinese are sure buying soybeans now. China’s hog inventory has expanded for the 7th consecutive month and is up 31.3% vs. year ago levels. Total US soybean sale commitments for late September are a record 1.401 billion bushels. Suddenly, the US agricultural economic outlook has drastically improved. One could make an argument that the market overdid it to the low side this spring and the US didn’t plant
enough corn and soybean acres this year. The old farmer was right and we may see that fine line in 2021.
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