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Trade battle intensifies
August 12, 2019

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The path of least resistance in the commodity market continues to be down. Buyers have been sidelined as there is very little news circulating to entice traders. Non-threatening weather forecasts for pollination and abundant global supplies cutting into US demand is setting up a hird consecutive weekly decline across corn, soybean and wheat futures.

An announcement late in the day on Thursday, August 1st by President Trump, only added to the negative tone on the week. It was stated that on September 1st the U.S. will put additional tariffs on $300 billion of Chinese goods coming into our country. This is on top of the $250 billion tariffed at 25 percent already in place. This comes after setbacks in earlier negotiations and the lack of progress on recent discussions. Discussions last week were that the US and China were set to resume talks in September. It has yet to be confirmed if these discussion will still take place with the addition of these new tariffs.

Trade is already looking forward to the August 12th report. Much of the focus in this report will be on changes to acres after last month's surprising figures. Yield data will also garner a lot of attention in the upcoming release. A historic look at corn yield shows large variability in the changes made by the USDA. Since 2000, they have decreased yield from the July to August reports 8 times, the largest being the drought year of 2012 with a huge decrease of 22.6 bushels per acre. Increases to yield were made 11 times over this period, with the largest in 2016 at 7.1 bushels per acre.

Changes to soybean yield are also variable in the August report. Over the same time frame, the USDA has decreased soybean yield 11 times, with the largest decrease also coming in 2012 at 4.4 bushels per acre. Increases were made 7 times, with largest being last year at 3.1 bushels per acre. The soybean yield has increased in the August report each of the last 5 years.

The calendar is turning to the time of year that firms start to put out their upcoming yield estimates. With such adverse planting conditions the range of estimates are expected to vary largely. In corn, estimates fall in the range of 150 to 170 bushels per acre. Soybeans seen 41 to 48 bushels per acre. The late maturity of both corn and soybeans this year is only adding to the uncertainty.

Updated forecasts last week showed a slightly drier outlook into mid-Aug. Forecasters predict temperature to be relatively cool over this same period limiting its effect on pollination and the bullish reaction at this time. After the latest drought monitor report indicated areas of concern are developing, trade will be monitoring precipitation totals closely.

African swine fever continues to spread through China and other countries. Bulgaria detected more than 20 outbreaks of the disease in the month of July, causing Greece to ban imports of pork from their neighbor. Analysts stated that China's pig herd could be cut in half by the end of the year. Estimates are that China's herd has shrunk 40% from a year ago, which is much higher than official estimates ranging from 15 percent to 26 percent. The statement comes amid industry speculation that the decline is much worse than confirmed by agricultural officials, who launched an investigation of efforts to contain the disease. Pork output for China could fall by 30 perent and the estimated output for 2020 is likely to drop 10 percent to 15 percent. It thought production could potentially take more than 5 years to recover to prior levels. This could continue to open doors for exports of pork.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.

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