TOWANDA, Ill. — Trade troubles and production uncertainty makes for tough marketing strategies.
“Where we’re sitting at right now, it’s really coming down to supply, or any kind of trade deal. I’ve been getting commodity markets wrong for over 20 years and I have never had a year where the uncertainty is just stacked at all levels, at the macro level, the supply level, the demand level,” Todd Hubbs, University of Illinois agricultural economist, said with a chuckle at the recent First Mid Ag Services field day.
Hubbs gave the following corn and soybean outlook for the old and new marketing years. Here’s what he had to say:
“USDA came out with an 168.2 bushels per acre average (in September) on corn yield, which seems almost preposterous to me. We’ll see how it goes through the harvest. We planted so much corn in the eastern Corn Belt so late.
“I’ve heard yield reports coming in, even the stuff they got planted early, seems to be about 20 to 25 bushels per acre down. I’ve heard some horrendous yield numbers, particularly out of Indiana.
“This thing is far from over, in my opinion. The uncertainty is so large because we planted corn all across the Corn Belt all over the place from April all the way through in some places July.
“I have a range of 160 as my low and 166 as my high, but honestly their 168.2 could be right. But we could see it go down to 155.
“It just does not seem reasonable to me that we could do above 168 when we planted 7 to 8 million acres in the eastern Corn Belt deep into June.
“We planted soybeans late everywhere. I’ve heard of people in Illinois planting them in July. The USDA was at 47.9 bushels per acre. I still think that’s too high. I don’t think the pods are out there.
“We had 65 bushels to the acre in Illinois last year. That was an amazing crop. USDA is down 10 bushels, I think we’ll be down more than that.
“My yields range from 45.5 to 46.5. We could go below 45. It is feasible with the amount of soybeans we planted late, but it’s going to be a tail-end event, in my opinion.”
On Planted Acres
“It was a shocker to me. We did have prevent plant 11.2 million acres, but we still planted 90 million acres of corn. When you look at the whole portfolio of crops and take in prevent plant and CRP, take it across cotton and wheat and small grains and everything, yes, we’re about at the levels we normally are.
“It looks reasonable when you look at the numbers and right now they’re saying 90 million planted corn acres and 82 million harvested acres. We planted a load of corn in the eastern Corn Belt in June, more than I thought we would, and I hope it works out for everybody, but I’m afraid it’s not going to.
“Everybody thinks USDA is going to fade its harvested acres number. What you have to understand about USDA’s statistical methods is they’re usually pretty good at these acreage numbers. They do miss sometimes.
“I hear people say they could take 3 million acres out of it. I’ll be very surprised if they do that. Now, if you told me they’d take 1.5 million or 2 million acres out of harvested acres, you won’t hear me peeping about it.
“They’re usually fairly close because of their survey methodology, their enumerators and the way they go. They have missed, but if your hope is we’re going to lower harvested acres by 5 or 6 million acres, it might be a tough road.”
“The trade fight is killing it. That’s everything. We basically did a (payment-in-kind) program on soybeans and nobody seems to care. We took 13 million acres out of production and prices are still atrocious.
“It’s mainly because without China taking our soybeans we’re in this 1.7 to 1.8 billion bushel export top. We usually do 2.1 to 2.2 billion bushels in the growth phase we were in.
“That’s a lot of pressure, and the Brazilians and Argentineans have been making a lot of money off of us and that’s why I don’t care if they get into a drought.
“Right now, USDA has exports at 1.7 billion bushels. I think we busted through that to maybe 1.73, 1.74. I think the crush is at least 20 million bushels higher than that.
“So, we’re going to get close to a 1 billion bushel carryout, but we’re not as high as we were, but that really doesn’t matter because we’re talking 1 billion bushels of soybeans.
“Corn exports sort of fell of the plate in the last half of the marketing year. USDA was at 2.1 billion bushels. My model says it’s at 2.06 billion. I can’t see us going past that, to be honest with you.
“There are the big crops in South America, their weak currencies. It’s going to be hard to weaken the dollar in the near-term. We’re the best of a bad lot.
“I don’t think it’s going to hurt our exports in corn too terribly much. Many of our main export markets tend to buy about the same amount year over year.
“A resolution to NAFTA 2 or USMCA would be great. I don’t think that’s going to see a huge boost in Mexico imports. We need to develop some markets or have a short South American crop. I’m a little bit optimistic on exports this year, but we’ll see how it goes.”
“I know everybody is worried about ethanol. USDA was at 5.425 billion bushels of corn for ethanol. Folks, there’s no way they did 5.425. My model had it at about 5.38 billion bushels. I’m fading a little bit because I don’t know how much sorghum we crushed in August.
“I know there’s been a lot of talk about small refinery exemptions and there are people upset about SREs. Here’s the hard truth about ethanol. I love the ethanol industry because they use corn.
“The hard truth is we’re going to blend 10% in the gas supply, and gas consumption is relatively flat, and it means we’re going to do 14.1 billion gallons of ethanol in the gas supply.
“The only place for growth that I see going forward is in the export market and that’s just how it is. If we looked at the boiler plate capacity that the ethanol industry had coming into 2019, it was close to 17 billion gallons. We did a little over 1.6 billion gallons of exports in the last marketing year.
“You don’t need to be an economist to add 14.4 billion and 1.6 billion gallons together and realize that’s not 17 billion gallons. There’s some over-capacity I think built-in.
“The SREs aren’t right and they need to do reallocation and follow the law as it was written, but I don’t see how that’s going to change the fact that we’re only going to blend 14.1 billion gallons.
“Now, there’s a lot of hope for E15, but we can’t make people buy it. It’s just like E85. It sounds great, but people aren’t buying it. We can’t make them take it.
“So, really I think if we see any growth in the next marketing year it’s going to be in exports. We’re probably going to do in this marketing year about what we did last year which is sort of a step down from the kind of growth we’ve seen.
“Mainly because, one, China didn’t take anything, this is just another casualty of the trade war, and Brazil is down, sugar prices are low. They use a lot more sugar for ethanol, and they’re getting in the corn ethanol business, as well.
“So, we’re seeing this fall-off from Brazil, none to China. We are seeing building markets in places like India, Indonesia and the Philippines and hopefully we’ll see some growth there in the next marketing year, but barring some kind of change in the rules where we make everybody take E15, which would be great, but also would be tied up in the courts from now until the end of time, it’s going to be hard to get any kind of growth in that sector.”
“My corn carry-outs are between 1.6 billion and 2 billion bushels, which puts me at $3.85 to $4.25 per bushel cash price. Having said that, I expect basis to be strong on the eastern Corn Belt. I think you’re going to see a pretty strong basis this year and if we really do short this crop it’s going to pop.
“In my models, I think the long-run price is about $3.80 if we continue with kind of supply and demand growth we’re seeing in the world. I would like you to keep that in your mind when you’re thinking about your marketing. If we do short this and get in the $4s I think it may be an opportunity for corn.
“We’re probably about 380 million to 400 million bushels down on soybean exports. We just can’t make up for that market power China has in the soybean exports market.
“Because of this, we have a 1 billion bushel (old crop) carryout, the price is down and flat, and despite us removing about 13 million acres from the crop, we’re still staring at a huge carryout in 2019-2020 unless we get some kind of resolution or just a tremendously bad crop.
“For 2019-2020, my models carryout between 500 million and 650 million bushels, depending on what the yield is going to be under my scenario. That’s with us knocking about 13 million acres out and a bad yield.
“We need that trade deal. If we don’t get it, this is what I think we’re staring at. Could we hit $9 soybeans? Sure.
“My only wild card in this is a South American drought. Pay attention to the weather in South America because if it continues dry for another month, you may see some weather rallies deep in the winter on South America weather problems, which may be pricing opportunities.
“To get down to where we typically see ending stocks under current demand consumption levels, we need a 42 (bushels per acre yield). That seems impossible to me, but if we did a 42 you could see a rally in there.”