The rest of this year could remain challenging for all agricultural commodities. The press has been loaded with reports of increased buying from China at historic levels, but prices have not responded. This is in part due to the burdensome supplies of nearly all commodities including the meat markets.
The economy, pandemic, unrest and increased competition from other countries have all played a role in this situation. Apart from a short dry spell in June, the weather has been very favorable across the nation this year. The percentage of crops that are rated as good to excellent are some of the highest in history.
This week the USDA listed US corn conditions as 72% good to excellent. This is up 3% from a week ago and 14% over last year. It is also 5% above the 5-year average at this point in maturity. The corn crop is nearing maturity, and little can happen to it at this point that would reduce yield substantially. Analysts suggest that this years rating would equate to around 3.6% above the 20-year trend line and a yield nationally of 182.5 bushels per acre.
Brazil is also expecting another big corn crop this year of over 100mmt. This is a historic volume of corn produced by Brazil as they have again added additional acres to their production. This country is second in corn production worldwide and the largest producer of soybeans in the world. China is their main buyer and has given preferential treatment to them over the past years.
The USDA projects this year’s total supply of corn in the US to be 17.273 billion bushels. After all uses and exports are calculated we expect a stock to use ratio of 18.1%. This would lead to an average on farm price of $3.35 per bushel. Many analysts think that this number might be optimistic expecting a stocks to use of 19.5% and on farm prices for this marketing year of $2.90 -$3.30. It is nearly impossible to show a profit at these prices.
Late July and August rains have greatly improved the soybean prospects in 2020. Forecasters are predicting moderate temperatures for this fall with greater than normal moisture. These are all positive signs for the soybean crop. A good number of acres were switched from corn to soybeans this year due to economic factors thus giving us an increased supply of beans. This crop is well ahead of a year ago and is also ahead of the 5-year average. It is too early to come up with an expected yield at this time, but the prospects look very good.
The USDA is projecting our stocks to use ratio this year to fall to 9.8% which shows an increasing use of soybeans. However, the USDA also expects the on-farm price of beans to fall this marketing year to an average price of $8.50 per bushel.
Brazil’s estimated production of soybeans this spring was around 126 million metric tons, with yields in some areas averaging over 53 bushels per acre. We must remember that this country’s seasons are just the opposite from ours. In September they will be planting soybeans for the 2021 growing season. All eyes will be on the weather conditions in South America as our crops are being harvested and stored. A major disruption in their growing conditions could add value to our harvested crops.
There are several factors that affect the cattle market. When you think you have a handle on the data a surprise can easily show up. From the low in April, feeder cattle and fat cattle prices have trended higher due to the increased demand for beef. Even though our slaughter numbers have not increased, the pounds of beef have due to increased slaughter weights. December live cattle contracts are currently over $111 which is a remarkable recovery from $89.25 on April 6.
My fear is: what will happen if the virus again requires the closing of the economy or the closing of slaughter facilities? If this happens the downside to this market could be as significant as it was this spring. These are things that we cannot control but we should be ready if they do happen.
Many producers are protecting themselves against this by utilizing LRP on their cattle to protect against falling prices. There are many different strategies that a producer can employ based on market conditions. Each operation’s needs are different so blanket recommendations do not work. I strongly suggest that this tool needs to be used in these uncertain times.
The same process needs to be considered in all classes of cattle because fats, feeders, and cow-calf operations are all affected by these same factors in which we have no control.
We are working with producers each day to develop plans that can protect these operations in the event of these losses. I would encourage all producers to visit with us and educate themselves on how these tools work and how they can be used in their operations.
I have been very impressed with cattle producers in general this spring as we went through the market crash. Many individuals looked at the opportunity to market a portion of their cattle differently and made arrangements to add value to their animals by processing or marketing livestock differently.
This outside the box thinking added significant returns to producers who were willing to go the extra step. Some producers went as far as to establish their own brands and market locally raised products to stores as well as to individuals when we had disruptions in our normal supply chains. I have yet to hear of a failure of persons marketing products this way. If all producers did this the market would instantly saturate but for those entrepreneurs who got in early this may become their new profit centers of the operation.
In general, the cattle industry is currently the brightest spot in the farm economy. It is important to protect ourselves against falling prices in case these conditions arise again. It will be tragic if we let modest profit potential turn into significant losses because we did not act.