August USDA Report Followup

By: Dave Belongia

It’s an understatement to say UDSA provided some surprises in Monday’s report. Here is some information to help analyze all the numbers you saw in the report. Some of these comments were provided by Arlan Suderman, Commodities Economist at INTL FC Stone. In general the trade came into this report with a bearish bias influenced by the trade war with China. The idea being that a trade war slows the economy resulting in less demand for products. This has especially affected demand for ag commodities. An individual commodity can rally in this environment, but needs a strong story to keep a rally going. Soybean numbers could be seen as somewhat bullish, but a short term rally will be hard to sustain in the face of bearish corn and wheat numbers. In gathering information for this report, USDA resurveyed areas in 14 states, especially those areas not planted before the June report. They wanted to see if those areas had been planted and if so, would they be harvested for grain or other uses. USDA staff did not walk field to determine corn and bean yields, instead relying on farmer interviews and satellite data.

USDA reported 90 mln. planted corn acres with 82 mln. acres harvested at 169.5 bushels per acre. All higher that the top trade guess. As mentioned in my last article, the harvested acreage number is the one to watch. Soybean acres came in at 76.7 mln. planted with 75.9 mln. harvested acres at 48.5 bushels per acre. All on the low side of expectations. We will continue to see changes in these numbers in future USDA reports and private surveys, but may not see meaningful numbers till October. Supply/Demand results based on these acreage and production numbers were also released.

Other factors affecting our markets and the economy in general:

Our trade dispute with China continues to make news. We may see more tariffs on Chinese goods, although reports out of Washington today delayed those new tariffs till December, sparking a rally in the stock market late in the day. More meeting are scheduled, but none of the most contentious issues have been dealt with at this time as it becomes apparent China will be slow to change their economic and cultural practices. African Swine Fever (ASF) continues to affect the Chinese swine herd. More cases continue to be reported with now some repopulated farms suffering loses a second time. Hog feeding is down 45%. Soymeal demand is reported down 11% with more product going to feed poultry flocks and fish farming operations. It appears China has not been effective in stopping the spread of the disease with 80% of pig breeding farms in China being affected as well as some surrounding countries.

Main ideas to take from this report:

These USDA numbers provide a base for discussion with more numbers to come from USDA and private firms.

Reliable yield data may not be available until October.

ASF is still a threat and will be for quite some time in China and other parts of the world.

A trade deal with China is still in the works, but timing is uncertain.

It will take the market some time to deal with these uncertain report numbers and volatility will continue.

Old crop marketing plans will depend on your need for storage space this fall. Declines in the corn market Monday and Tuesday will take some time to recover. Bean declines from Monday have already been mostly recovered and provide some opportunity to finish marketing old crop beans. The volatility in the market will provide opportunities. Be ready to take advantage when they present themselves.