The 2020 crop year is quickly approaching, and farmers, agribusinesses and bankers are all preparing for planting. The commodity markets have been filled with significant news from around the world, shaking up the supply and demand outlook for U.S. crops. Farmers have a large amount of data at their fingertips to help them make crop selections and other planting decisions ahead of the April start to planting in the Corn Belt.
U.S. row crop
The glut of global fertilizer has continued to send prices lower in early 2020. To farmer’s delight, DAP and MAP are down 19%, Potash is down 3%, and Urea is down 11% year-over-year, according to DTN. Unfortunately, new crop corn prices decreased 3% and new crop soybeans decreased 6% to start 2020. February typically does not offer strong marketing opportunities for agricultural commodities while 2020 crop insurance prices are being established.
Corn and soybean prices dipped in 2020, primarily due to the strength of the U.S. Dollar and the extremely weak Brazilian Real. The Brazilian Real is at its weakest point versus the Dollar in over 15 years, which positions Brazilian corn and soybeans much cheaper on the global market. The current soybean-to-corn price ratio in the U.S. is at 2.36, which is relatively average for February. Watch for any increase in the ratio, which will signal a likely shift from corn acres into soybeans, and vice versa.
U.S. livestock and dairy
Milk prices decreased to start the New Year. Class III decreased 2.7% and Class IV decreased 6.8%, primarily due to a decrease in cheese prices coming off five-year highs in late 2019. The largest dairy processor in the U.S., Dean Foods, reached an agreement to sell 44% of its fluid and frozen facilities and real estate to Dairy Farmers of America for $425 million. Dean Foods filed for Chapter 11 in November 2019 stating low milk prices as the primary headwind, according to USA Today.
China recently lifted a ban on live U.S. chicken imports that was held since 2015 on fears of avian flu. The lifted ban is meant to help prevent substantial supply shortfalls due to the coronavirus. Now, all U.S. chicken products are approved for import.
U.S. pork exports increased by 10% from 2019, totaling $7 billion, according to U.S. Meat Export Federation. The primary driver was increased demand from China, Hong Kong, South Korea and Mexico. A record high amount of monthly U.S. pork exports occurred in December 2019. The demand for animal-based protein continues to grow within the expanding middle class in emerging economies.
Ground-level insights from ag bankers
Mark Linderbaum, Southeast Minnesota
Local price basis is almost at a record low, which will allow for decent pricing on old crop corn, as well as 2020 new crop corn. A strong marketing plan in 2019 proved to be a major asset for farmers. Milk prices are currently above breakeven, and futures are at least at breakeven for 2020. Both fed and feeder cattle prices are strong, helping boost livestock operations in the region. At this point, producers are starting to see and hear about the drop in fertilizer prices, and maybe 2020 is the crop year where waiting to order will pay off for producers.
Kurtis Gartland, West Central Minnesota
Farmers are being rewarded in 2020 for shopping around for inputs in this declining input market. The cattle and hog producers in the area are anxiously waiting for updated news surrounding the coronavirus’ impact on supply and demand. On the row crop side, the snowpack insulated the ground prior to the hard frost, so there is little if any frost remaining, and most tile lines have stopped running. Excess soil moisture is no longer a major concern on well-drained farmland.
Jay Tweed, East Central North Dakota
Remaining 2019 corn acres are being harvested whenever the weather allows here in Central North Dakota. Farmers continue to monitor and weigh the potential benefits of lower moisture and higher test weight corn versus the potential consequences of reduced yields and a further delayed 2020 planting season. For the most part, producers are anticipating level input prices for 2020. Local fertilizer prices are down, however farmers are hesitant to take full advantage due to the potential risk for a repeat of prevent plant acres this spring.
The coronavirus continues to dominate headlines in 2020 without signs of slowing down. In agriculture, uncertainty is looming on the demand for ag products, specifically in Asia. Up and down the supply chain may be substantially affected by further expansion of the virus. Recently, the Chinese Center for Disease Control announced the coronavirus’ death rate is 2.3%, much higher than the typical U.S. flu at 0.1%. Private Chinese importers will soon be able to apply for a tariff exemption by the Chinese Government on over 700 U.S. agricultural goods, including corn, soybeans, wheat, pork, and beef on an individualized basis. These exemptions may be granted as soon as March 2 and will be valid for one year.
The Brazilian soybean harvest is on an average pace and 20% complete as of mid-February. The crop is expected to be a record 125.6 million metric tons, up 1.3% from January’s estimate, according to AgRural. Brazilian truckers are starting to strike outside the Port of Santos over taxes on gas and diesel, according to Reuters. Other strikes are rumored to continue within other key ag regions of Brazil.
Global wheat production is starting to cause mild concern after lower production was estimated in the EU, Australia and Ukraine. Although wheat can be grown across the world, major supply disruptions can spur price rallies. Chicago July wheat prices rallied 20 cents over two days in mid-February over such concerns.
What to watch for
While farmers are finishing up their 2020 farm plans, global supply and demand concerns will continue to cause volatility in the ag markets. In a volatile market, a strong marketing plan may provide much-needed risk mitigation.
Key topics, including progression of the Chinese Phase 1 Trade Deal, the coronavirus, South American logistic concerns, and global wheat production all provide potential opportunities for a bullish U.S. ag market. For now, farmers will manage their input purchases and grain inventories.
USDA will provide the first substantial estimate for 2020 production on March 31, which often provides price movement.
Director of Specialized Agriculture Solutions
372 St. Peter Street
Saint Paul, Minnesota 55102
748 Whitewater Avenue
St. Charles, Minnesota 55972
701 Atlantic Avenue
Morris, Minnesota 56267
Specialties: Commercial, Agriculture, Small Business
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Carrington, North Dakota 58421