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Anticipating June 1 Corn Stocks

Next week (June 30th) USDA will release the quarterly grain stocks report for corn. These numbers have not been updated since March. It will reflect consumption patterns during the coronavirus pandemic.

The third-quarter grain stocks number is important because it gives the trade an actual tally of how much corn is left from the total available supply in the United States. Early this month USDA projected about 5.7 billion bushels of corn would be used this marketing year in the feed and residual category. This is the one that has the most scrunch room in it. University of Illinois Extension Agricultural Economist Todd Hubbs says if the June stocks report shows 4.89 billion bushels left in the bin, then things are on track, “It will be on track and you make actually see feed and residual move up a little bit if it is in that range. We typically see a fourth quarter feed and residual higher than what that would imply for the third quarter or the first three quarters’ feed and residual use. So, it is on track with the possibility of USDA raising feed and residual numbers.”

The feed and residual number, of course, isn’t the only consumption category for corn. Ethanol took a big hit during the first two months of the pandemic shut down as people stayed home and cars sat idle. The ethanol grind was down 26.7 percent in March and April. It was off in May, too, says Hubbs, “I assume that we will see the kind of convergence rate we’ve seen under the last couple of months of the lockdown. I have the (month of) May number at around 308 million bushels which puts total use for the quarter at around 969 million bushels. Which is way down from what we would normally do in the third quarter of the marketing year.”

The third primary consumption category is the export of corn. Hubbs expects it to be about 1.2 billion in total for the first 9 months of the marketing year. When you total it all up, the exports and the domestic usage, third quarter consumption looks to be right at three-billion-bushels. Hubbs says that number would put June 1 stocks at 4.89 and that figure is less than what was on hand last year at this time, “We would have slightly lower (stocks of corn), about 300 million bushels lower. We must remember we had much smaller crop in the previous year than we did in 2019. So, we will have fewer bushels in the bin, but we won’t be using as many bushels as we did in the last marketing year.”

USDA will update the grain stocks report next Tuesday, June 30th at 11am central time.

Waiting for the Trade Deal


The highly anticipated release of USDA’s crop production and ending stocks reports last Friday created a somewhat negative tone in corn and soybean markets. Despite the slightly bearish tilt, prices for both commodities closed higher on Friday. The pending phase one trade agreement and South American production prospects look to set the tone for prices over the near term. - Todd Hubbs, ILLINOIS Extension



by Todd Hubbs, University of Illinois
link to original farmdocDaily article

Corn production for the U.S. in 2019 came in at 13.69 billion bushels, up 31 million bushels from the previous forecast on higher national average yields. Average corn yield of 168 bushels per acre is one bushel higher than the previous forecast. The harvested acreage estimate of 81.5 million acres is down from the November forecast of 81.8 million acres. Current production estimates for corn show eight percent of the crop still in the field and open the estimate to possible revision in the future.

December 1 corn stocks came in at 11.39 billion bushels. The estimate is 122 million bushels below trade expectations and indicates a total disappearance of 4.53 billion bushels in the first quarter of the marketing year. The USDA’s revision of the September 1 corn stocks higher by 107 million bushels along with greater production indicates a massive feed and residual use component in the first quarter.

At 5.525 billion bushels, the WASDE forecast for corn feed use and residual moved up by 250 million bushels from the previous forecast for the 2019–20 marketing year. Despite the significant boost in consumption from feed and residual, projected ending stocks fell only 18 million bushels from the previous forecast. Consumption projection for categories other than feed and residual fell 95 million bushels. While the corn use for ethanol forecast stayed steady at 5.375 billion bushels, the forecast for other industrial purposes decreased by 20 million bushels to 1.395 billion bushels. The forecast for corn exports dropped 75 million bushels to 1.775 billion bushels due to the continuation of weak export numbers through the first four months of the marketing year. The pending trade deal with China holds the promise for change in some of the consumption totals.

The phase one trade deal due to be signed sometime this week still lacks specificity. While the administration continues to tout agricultural export increases near $16 billion over 2017 totals of $24 billion, very little confirmation from the Chinese side has come forth thus far. The Chinese indicated that they would not exceed their global quota on corn imports for any individual country in 2020. The quota for corn stands at 7.2 million metric tons (near 283 million bushels). Through November of 2019, Census data indicates China imported 12.3 million bushels of corn from the U.S. during the calendar year. There remains plenty of room for increased Chinese imports of U.S. corn and corn-related products in 2020 despite the quota. Details surrounding the trade deal matter and look to help shape price prospects for corn over the next few months.

Foreign production projections for corn in the 2019–20 marketing year moved up slightly due to an increase in the European Union and Russian production. Brazil’s corn production forecast stayed at 3.98 billion bushels. Concerns about production losses for first crop corn in southern Brazil due to dry conditions continue to evolve. Strong domestic corn prices in Brazil point to producers planting the safrinha crop even if planting is later than ideal in many areas. Argentinian production forecasts stayed at 1.97 billion bushels. The forecast for Argentina and Brazil corn exports sit at 2.73 billion bushels, 335 million bushels lower than last marketing year. Given the current forecast for South American exports, the evolution of crop conditions in the region, particularly on the Brazilian safrinha crop, hold important implications for corn exports during the coming year.

Soybean production for the U.S. in 2019 totaled 3.558 billion bushels, up 8 million bushels from the previous forecast on higher national average yields. The national average soybean yield of 47.4 bushels per acre is 0.5 bushels higher than the previous forecast. The harvested acreage estimate of 75 million acres is down from the prior forecast of 75.6 million acres. Current production estimates for soybeans indicate two percent of the crop remains in the field. December 1 soybean stocks came in at 3.252 billion bushels, 66 million bushels above trade expectations.

The WASDE report maintained consumption and ending stock projections at the same levels seen in the last forecast. The crush forecast stayed at 2.105 billion bushels, reflecting the pace of soybean crush in the first quarter of the marketing year. Soybean export forecast levels of 1.775 billion bushels remained steady and mirrored the current pace of exports without the possible trade deal impacts. Unlike corn, soybeans do not face a quota scenario in China. A trade deal with specificity on soybean exports could provide support for prices.

A Brazilian crop at 4.519 billion bushels portends tough competition in world markets for U.S. exports. The Argentinian soybean production forecast stayed steady at 1.95 billion bushels. Forecasts for Brazil and Argentina soybean exports are set at 3.09 billion bushels over the marketing year, up 15 million bushels from last marketing year’s estimate. Increased U.S. soybean exports to China under the trade deal may see strong substitution buying of South American soybeans by other major buyers that may limit U.S. exports upside potential despite a trade agreement.

Additional discussion and graphs associated with this article available here.

MFP Payments and 2020 Cash Rents


MFP payments have had impacts on land rental rates. Moreover, uncertainty about the continuation of MFP in 2020 presents issues in setting cash rental rates. Given this uncertainty, we present the idea of setting cash rents at appropriate levels given the price and yield environment, likely lower than 2019 cash rent rates, with contingencies for cases in which MFP payments occur. By doing this, base cash rent is set at a level that allows the farmer to generate profits and leaves open the option for both parties to benefit if MFP payments occur in 2020.

by Gary Schniteky, ILLINOIS Extension
link to farmdocDaily article

Market Facilitation Program (MFP) payments have served as a significant source of revenue on grain farms in 2018 and 2019. Without MFP payments, average farmer returns would be negative in 2019, and far below any level since consistent records began in 2000. Without MFP payments, 2020 returns are projected to be negative. It is unknown at this time if MFP payments will occur in 2020, or the potential level of an MFP payment if the program continues. When developing cash rental rates, we suggest lowering cash rent levels if they are at or above averages for a productivity level, and then having the possibility of higher cash rents if MFP payments occur.

Historic Returns to Central Illinois
Figure 1 shows average operator and land return and average cash rent on high-productivity farmland in central Illinois, with historical values representing actual returns from grain farms enrolled in Illinois Farm Business Farm Management (FBFM). Documentation for values shown in Figure 1 is provided in Revenue and Costs for Illinois Grain Crops (click here for download). Historical and projected revenue assumptions also are given in a November 19, 2019 farmdoc daily article. Figure 1 shows returns for farmland given that 50% of the acres are in corn and 50% are in soybeans.



Two lines are shown in Figure 1. The first is operator and land return, representing a return to both the farmer and land owner. Costs for farmland are not included in operator and land return. If farmland is cash rented, the cost to the farmer is cash rent. Figure 1 also shows average cash rent in central Illinois. When operator and land return is above cash rent, a farmer will have a positive cash return on cash rented land. Losses occur when operator and land return is below cash rent.

Between 2006 and 2013, a period in which corn and soybean prices were relatively high, operator and land returns exceeded cash rents by large margins. This period was characterized by higher net incomes (see farmdoc daily, November 19, 2019). Cash rents were rising during this period in response to higher operator and land returns.

Average operator and land returns have been roughly the same as average cash rents since 2013:
  • 2014: Operator and land return was $290 per acre, cash rent was $293 per acre, and farmer return was -$3 per acre.
  • 2015: Operator and land return was $265 per acre, cash rent was $278 per acre, and farmer return was -$13 per acre.
  • 2016: Operator and land return was $291 per acre, cash rent was $273 per acre, and farmer return was $18 per acre.
  • 2017: Operator and land return was $250 per acre, cash rent was $267 per acre, and farmer return was -$17 per acre.
  • 2018: Operator and land return was $355 per acre, cash rent was $274 per acre, and farmer return was $81 per acre.
  • 2019 Projections are for an operator and land return of $273 per acre, cash rent of $274 per acre, and farmer return of -$1 per acre.
Lower returns after 2013 largely occurred because of declines in commodity prices. Returns shown in Figure 1 suggest that cash rents should decline because farmers need to obtain a positive return for the risks, labor, and management of farming. Likely reasons that cash rents farmers are paying have not declined are 1) financial reserves built during the period of high incomes from 2006 to 2012 are allowing farmers to continue paying high rental rates in hopes that higher commodity prices in the future will make those rates profitable (farmdoc daily, October 4, 2016 and October 23, 2018), and 2) positive returns from owned and share rented farmland are used to subsidize cash rent farmland (farmdoc daily, August 22, 2017). Trade disputes, and other factors such as African Swine Fever in China, have considerably diminished chances of higher prices in the near future.

Impacts of MFP payments
In 2018, trade disputes between the U.S. and other countries began impacting agriculture, with the tariff battle between China and the U.S. receiving a great deal of attention. Soybean prices declined throughout the year as the trade dispute continued. On central Illinois farms, prices averaged $8.85 per bushel for soybeans produced in 2018, down from the $9.81 average from 2013–2018.

Although soybean prices were down, returns were positive for central Illinois farmers, at the highest level since 2013 (see Figure 1). In 2018, operator and land return exceed cash rent by $81 per acre. Both exceptionally high yields and MFP payments contributed to this higher return. In 2018, MFP payments accounted for $62 per acre of return, with most of that coming from soybean acres (see farmdoc daily, November 19, 2019). Without the MFP payments, farmer return in 2018 would have been $19 per acre, in the range of returns in other years since 2013.

In 2019, farmer return is projected at -$1 per acre. Returns are down in 2019 because of much lower yields. MFP payments have a large, positive impact on returns. For 2019, MFP payments for central Illinois grain farms are estimated at $82 per acre, up by $20 from average 2018 levels (see farmdoc daily July 30, 2019 for a list of payments by county). This $82 level assumes that all three tranches of MFP payments are paid. Two tranches totaling three quarters of the payment amount have been paid.

The third tranche, if confirmed, would be distributed in early 2020 with the remaining quarter of the payment. Without a MFP payment, 2019 returns are estimated at -$83 per acre, the lowest farmer return since 2000 (see Figure 1).

Figure 1 also includes projections for 2020. Operator and land return is projected at $232 per acre, cash rent at $270 per acre, and farmer return at -$38 per acre. The 2020 projection is based on a return to trend yields. Exceptional yields like those in 2018 would be needed to get positive returns given prices of $3.90 per bushel for corn and $9.00 for soybeans. However, prices may fall to lower levels if exceptional yields occur. As a result, crop revenue increases alone likely will not lead to higher farmer returns. Positive returns in 2020 may be dependent on some level of support, such as the continuation of the MFP.

MFP Payments in Perspective
In the last two years, MFP payments have been a significant source of revenue on Illinois grain farms. In 2018, MFP payments represented 8 percent of total gross revenue received from corn and soybeans production. In 2019, MFP’s share is presented at 11 percent (see Figure 2).



Government payments have not accounted for that large of a share of gross revenue on Illinois grain farms since the early 2000s. In the early 2000s, government support to farmers through the Agricultural Market Transition Act, Market Loss Adjustment, and marketing loan programs represented a higher share of gross revenue. For example, government payments were 25% of gross revenue in 2000, 23 percent in 2001 (see Figure 2)

Cash Rents Corn and soybean prices fell and were at lower levels in both the early 2000s (beginning in 1998) and since 2018. Those lower prices then led to governments payments. In the early 2000s, those payments were legislated through Congress. The MFP payments come through different authority, with levels determined through a process that is not transparent (see farmdoc daily, November 21, 2019 for more discussion of the MFP program). Also, the levels of MFP payments from one year to the next are not known. For 2019, administrative officials indicated that MFP payments would not occur up to May 2019. In actuality, MFP payments on most farms will be higher in 2019 than in 2018.

Counterfactuals are difficult to prove, but it seems likely that farmers in the early 2000s would have had to make larger adjustments in response to lower commodity prices had government support not existed. In the end, land returns likely would have declined, and cash rents fallen.

Similarly, cash rents likely would have fallen in 2019 as a result of lower commodity prices in 2018 had MFP payments not existed. The extent to which they would have fallen depends on how participants view the permanence of lower soybean prices. If soybean prices will continue below $9.00 for several years, cash rents need to adjust downward if MFP payments do not continue.

2020 Cash Rents
The uncertainty of MFP payments presents an issue for setting 2020 cash rents. If MFP payments do not occur, farmers could face large losses if cash rents levels are set as if MFP payments will occur. On the other hand, MFP payments at the 2018 and 2019 levels could result in good farmer returns, particularly if yields are exceptional. This uncertainty obviously adds to the difficulty in making cash rent decisions for 2020.

As farmers and landowners negotiate rental rates for 2020, several factors should be considered. Cash rental rates have remained relatively flat despite a lower price environment since 2013. The average central Illinois cash rental rate has put farmer returns below break-even in three of the last five years, and likely right at break-even in 2019 including the full MFP payment.

Given the uncertainty about MFP payment, an appropriate approach would be to set a cash rent without the MFP considered in budgeting and allowing for an increase in the rent if the MFP occurs.

As an example, consider 2020 projections. Without an MFP payment, 2020 operator and land return is projected at $232 per acre. This $232 per acre is considerably below the 2018 average rent of $273 per acre. Setting a cash rent at $230 per acre would result in a $2 projected return to the farmer, not a desirable return, but better than a loss that would result with a cash rent at the $273 average for 2019. The lease could then have a clause that shares the MFP payments 50–50 between the land owner and farmer. If an $82 per acre MFP payment is received — equivalent to the average projected payment for 2019 — the farmer would make an additional payment of $41 to the land owner, resulting in total rent to the land owner of $271 per acre ($230 base cash rent plus $41 payments from the MFP payment), and a $43 return to the farmer ($2 projected return with MFP pulse $41 from MFP).

Several notes about the above lease:
  1. A share-rent arrangement has risk sharing directly built into the lease. As a result, MFP payments already are considered in share-rent arrangements
  2. The above lease is very close to a variable cash lease (see farmdoc daily, September 9, 2015 for a discussion of one-type of variable cash leases. Click here for a lease). Variable cash leases would consider possible higher returns due to higher prices or yields. Inclusion of MFP like payments in variable cash leases seems warranted if base levels are low enough such that farmers do not take large losses at base rent levels.
  3. Base levels need to be set low enough so that farmer risks are reduced. Putting a clause for MFP sharing without lowering cash rents simply shifts returns from farmers to land owners, and adds risk to the farmer.
  4. The 50–50 sharing percent is dependent on having the base level low enough that farmer risks are reduced. Given the current economic environment, base rent levels should be well below cash rent levels. A method for determining average cash rents for different cash rent levels is presented in a November 7, 2017 farmdoc daily article.

MFP Impact on 2019 through 2023 Incomes and Financial Positions

read farmdocDaily post

Market Facilitation Program (MFP) payments in 2019 of $50 per acre will reduce financial erosion on farms. Still, incomes for 2019 are projected to be over $100,000 lower than 2018 incomes.

June Acreage Report Heightens Uncertainty

by Todd Hubbs, University of Illinois Extension
link to farmdocDaily article and video

On June 28, the USDA released the Acreage and Grain Stocks reports. While the Grain Stocks report provided support for both corn and soybeans, the Acreage report indicated higher than expected corn acres and lower than expected soybean acres. The acreage numbers injected a substantial amount of uncertainty into both markets that appears set to stay in place throughout the summer.


The 2019 June USDA Acreage Report rocked the corn market. University of Illinois Agricultural Economist Todd Hubbs explores those numbers in this interview with ILLINOIS Extension Farm Broadcaster Todd Gleason.

A dramatic drop in principal crop acreage provided one of the many surprises in the Acreage report released on Friday. Driven by much lower soybean and wheat acreage, total principal crop acreage came in at 309.3 million acres, down 6.1 million acres from the March Prospective Planting report. Principal crop acreage estimates decreased by 10.3 million acres from 2018 totals. Significant increases over last year’s acreage occurred in corn (2.57 million acres) and barley acreage (314,000 acres). The vast majority of crops witnessed acreage decreases from last year. Soybean acreage led the way with a 9.2 million acre decrease. Wheat acreage came in down 2.19 million acres.

An extraordinary year for corn production took another unexpected turn on Friday. Corn producers reported they intended to plant 91.7 million acres of corn this year. Corn planted acres came in 1.1 million acres lower than March planting intentions, but well above expectations due to delayed planting. When compared to March planting intentions in major producing states, the June survey revealed higher corn acres in Kentucky (220,000 acres), Kansas (200,000 acres), and Nebraska (300,000 acres). Acreage lower than March intentions in South Dakota (1.2 million acres) and North Dakota (350,000 acres) offset gains seen in other areas of the western Corn Belt. Surprisingly, the major producing states in the eastern Corn Belt saw slight to no changes from the March intentions.

The USDA reported 16.7 percent of the corn acreage (15.3 million acres) remained unplanted as of the survey period and indicated an intention to re-interview 13 of the 18 major corn-producing states in July for the August production report. The prospect of considerable prevented planting acreage in the eastern Corn Belt places the 91.7 million acres reported in the June report in question. The shift out of soybeans and most feed grains may indicate an expansion of the base corn acreage intended for planting in 2019. A lack of clarity about prevented planting acreage reported in the June survey window remains a concern and points toward further downward revisions in the August Crop Production report.

The corn stocks report provided some positive news for corn use. June 1 corn stocks came in at 5.2 billion bushels, nearly 103 million bushels lower than last year and 130 million bushels smaller than the average trade guess. Estimation of total disappearance during the quarter is 3.41 billion bushels. Estimated third quarter feed and residual use come in at 1.13 million bushels. Estimates of feed and residual use during the first three quarters of the marketing year sits at 4.615 billion bushels. To reach the projected 5.3 billion bushels of corn projected for feed and residual this marketing year, feed and residual use in the fourth quarter must equal 685 million bushels. Based on current stocks estimate, it appears feed and residual use this year is on track to hit the current USDA projection.

Soybean producers intended to plant 80 million acres of soybeans. The soybean acreage intentions came in below market expectations. Soybean planted acres fell by 4.6 million acres from the March planting intentions. At the time of the survey in early June, producers indicated that 41.2 percent of the intended soybean acreage (33 million acres) remained unplanted. Soybean acreage came in lower than last year’s totals in every state that reported in the June survey. The most substantial adjustments came in South Dakota (1.25 million acres), North Dakota (1 million acres), Iowa (900,000 acres), and Minnesota (900,000 acres). The substantial drop in soybean acreage may indicate issues with planting, but the large totals left to plant place the soybean acreage estimate in question as well. USDA plans to re-interview 14 of the 18 major soybean-producing states in July.

The June 1 soybean stocks estimate indicated a record 1.79 billion bushels, up 571 million bushels from last year. The stocks estimate came in 71 million bushels below market expectations. To meet the current USDA projection for soybean ending stocks, 720 million bushels of use is necessary for the fourth quarter. Despite the continued uncertainty in trade negotiations and record stocks, June 1 soybean stocks are neutral for soybean prices as soybean consumption maintains a pace to meet USDA projections for the marketing year.

Corn futures prices saw a dramatic drop with the release of the Acreage report. Soybean prices drove higher on the lower supply expected under reduced acreage. Uncertainty regarding corn and soybean acreage looks to continue through the August production report. If the corn acreage total ends up at the reported level in the June Acreage report, the prospect for corn yield moves to the forefront of supply expectations this year. By re-interviewing many major producing states for both corn and soybean acreage, USDA may be signaling revisions to come.

Corn Acreage and Stocks | an interview with Todd Hubbs

by Todd Hubbs, University of Illinois
link to farmdocDaily post

Corn futures prices rallied about $0.90 per bushel since the beginning of May. The rally reflects expectations that planted acreage will fall well short of March intentions and on yield concerns associated with wide-ranging late planting. Demand weakness continues to emerge in the export market, but supply issues look to overwhelm any decrease in demand. The release of USDA’s Grain Stocks and Acreage reports on June 28 looks to set the tone for summer corn prices.


The end of the month USDA Grain Stocks and Acreage reports are less than two weeks away. Todd Gleason talks with University of Illinois ag economist and commodity marketing specialist about the projected numbers and how farmers should set this self up for marketing this year’s corn and soybean crops.

The reduction in corn planted acreage by three million acres and corn yield by 10 bushels per acre in the June WASDE appears to be a harbinger of things to come this year. The June estimate of planted acreage of corn is generally expected to be far less than intentions of 92.8 million acres reported in March. The only question remaining is the scale of acreage loss. The magnitude of prevented planting acres this year looks to eclipse the previous record of 3.6 million acres in 2013 by a wide margin. As of June 9, 14.5 million acres remained unplanted in the 18 states reported in the Crop Progress report. The amount of prevented planted acreage in those estimates remains uncertain, but the prospect of planting more than 14 million acres of corn after June 10 seems daunting.

Additionally, some acreage may have been switched to soybeans due to delayed corn planting over large areas of the Corn Belt. Recent wet weather brings soybean acreage planting into question as well. However, the prospect of a new round of Market Facilitation Payments provides a strong incentive to plant soybeans in the second half of June if weather permits. The June acreage estimate will probably not be changed until FSA certified acreage data becomes available in October. The final acreage estimate released in January tends to be less than the June estimate. Since 1996, the final estimate averaged 626 thousand acres less than the June acreage report in years when prevented planting acreage exceeded one million acres. This year may see a substantial drop from the June acreage estimate due to the uncertainty about planting during the survey period.

While the supply situation looks increasingly supportive of corn prices, current levels of corn use show weakness; particularly in the export market. The estimate of June 1corn stocks will reflect the recent decrease in consumption and reveal the pace of feed and residual use during the third quarter of the marketing year. The expected size of June 1 stocks can be calculated based on consumption data that are currently available and on the assumption that feed and residual use is on pace with the USDA projection of 5.3 billion bushels for the year. Based on the USDA’s Grain Crushings and Co-Products Production reports for March and April and on the EIA weekly estimates of ethanol production during May, corn used for ethanol production during the third quarter of the marketing year is estimated at 1.347 billion bushels. Corn used for other domestic industrial products is estimated at 362 million bushels.

Cumulative export inspections during the first three quarters of the marketing year totaled 1.549 billion bushels. Through April, Census export estimates exceeded export inspections by 149 million bushels. If that margin continued through May, exports during the first three quarters of the year totaled 1.698 billion bushels and indicated exports during the third quarter at 566 million bushels.

For the marketing year, the USDA projects feed and residual use of corn at 5.3 billion bushels. Feed and residual use during the first half of the year totaled 3.487 billion bushels. Use during the last half of the year needs to equal 1.813 billion bushels for total use to reach the USDA projection. Third and fourth quarter feed and residual use vary substantially over time. Feed and residual use near 954 million bushels during the third quarter this year sits close to the center of the range based on the historical data. With March 1 stocks of 8.605 billion bushels and imports during the quarter of 8 million bushels, the estimates of consumption during the quarter point to June 1 stocks of 5.384 billion bushels, 79 million larger than stocks of a year ago. A deviation from June 1 stocks less than 100 million bushels from the current estimate will not engender much price movement. The Acreage report on June 28 should overwhelm any information in the stocks report.

Uncertainty about corn acreage looks to remain in place through the summer. Weakening demand should not be a hindrance to a continued price rally since the supply situation is quite dismal. Strengthening corn basis and futures prices point to marketing strategies involving delayed pricing of the new crop. Price objectives need to be set to take advantage of current corn market dynamics. Managing crop price risk can be accomplished with a variety of marketing strategies. It is essential to have a marketing strategy since supply shocks provide a limited time frame to take advantage of pricing opportunities. The strategy probably should include plans for pricing some of the 2020 crop.

Crop Insurance Loss Ratios in 2018


Gary Schnitkey from the University of Illinois discusses crop insurance loss ratios for 2018, the current outlook for payments in 2019, and the strategic economic models he’ll be developing for soybeans.

by Gary Schnitkey, University of Illinois
link to farmdocDaily article

Most 2018 payments on Federal crop insurance products have now been entered into the Risk Management Agency’s (RMA’s) record system and losses for 2018 can be stated accurately. Similar to 2016 and 2017, low losses again occurred in 2018. Losses were particularly low in Illinois and, more generally, the eastern Corn Belt.

Background on Loss Ratios

This article presents loss ratios, which equal payments on crop insurance policies divided by total premium paid on crop insurance policies. A loss ratio of 1.0 means that crop insurance payments are equal to total premium. Ratios above 1.0 indicate that payments exceed premium, which occurs with some regularity. On the other hand, loss ratios below 1.0 indicate that payments are less than premium. Given the way RMA sets premiums, loss ratios should average slightly below 1.0 over time. Given the high correlation of losses across policies in a year, variability in aggregate loss ratios will occur from year to year.

Data reported in this article come from the Summary of Business which is available from the RMA website. Data were downloaded in late April of 2019. Some changes to loss ratios will occur over time as more loss data become available. However, 2018 loss performance will not materially vary from loss ratios presented here.

Loss Ratios in 2018

For all insurance products, the 2018 loss ratio was .69, indicating that crop insurance payments were less than total premium. Overall, 2018 was a low loss year, continuing a string of low loss years that have occurred since 2013 (see Figure 1). Loss ratios exceeded 1.0 in the drought year of 2012 when the overall loss ratio was 1.57. Payments also exceeded premium in 2013 when the loss ratio was 1.03. Since 2013, loss ratios have been below 1.0 in each year: .91 in 2014, .65 in 2015, .42 in 2016, .54 in 2017, and .69 in 2018. These low loss years correspond to relatively high yielding years in corn and soybeans (farmdoc daily, April 16, 2019).



The overall loss ratio is highly influenced by the performance of corn and soybeans, as these two crops account for 56% of total premium. In 2018, corn policies had 32% of total premium while soybeans had 23%. In 2018, loss ratios were .43 on corn and .56 on soybeans. Since 2014, both crops have had low loss ratios. Corn loss ratios were .46 in 2015, .27 in 2016, .37 in 2017, and .43 in 2018. Soybean loss ratios were .55 in 2015, .21 in 2016, .30 in 2017, and .56 in 2018.
2018 Loss Ratios by County

Many counties in the Corn Belt had very low loss ratios, as would be expected given that corn and soybeans have very low loss ratios. Figure 2 shows loss ratios by county for all policies in that county. Loss ratios below .4 predominated in a stretch of counties beginning in eastern Iowa, going through Illinois, Indiana, and ending in Ohio. Low loss ratios also were in western Corn Belt counties including Minnesota, North Dakota, South Dakota, and Nebraska. In contrast, there was a concentration of counties along the Iowa-Minnesota border that had higher loss ratios above 1.0.



Other sections of the country had higher loss ratios. Loss ratios above 1.2 predominated in North and South Carolina, Georgia, Florida, northwest Missouri and eastern Kansa, and western Texas.
Summary

Overall, loss ratios were low in 2018, continuing a string of years since 2014 that have had low loss ratios. Low loss ratios occurred primarily because of low losses on corn and soybean policies in the Corn Belt.

Feb 23 | WILLAg Newsletter

Changes are coming!

The agricultural sector is caught up in a storm of change. Political and economic forces have been squeezing trade on the global front and U.S. farmers have been leaning into the winds. We take up a few of these topics in this edition of the WILLAg Newsletter.
  • Trade with China
  • Profile of USTR Lighthizer
  • USDA Ag Outlook Forum
  • Corn Acreage in 2019
  • Expected Corn vs Soybean Returns
  • 2018 Ethanol Plant Losses
We’ll also explore these topics, marketing prospects, the price of farmland, and the weather during our March 5 All Day Ag Outlook. Hopefully, you can join us at the Beef House in Covington, Indiana. The cost is just $30 and includes Beef House coffee and rolls in the morning and Beef House lunch at the noon hour.

Tickets are available online or by calling 800–898–1065.

Hope to See You There!
Todd E. Gleason, Farm Broadcaster
University of Illinois Extension | WILLAg.org





Trade with China

Friday the Chinese trade delegation gathered in the Oval Office with President Trump. A letter from President Xi was read out loud. It urged a continued push toward a final trade deal. The only firm detail to come out of the week’s worth of talks in Washington was a commitment to purchase 10mmt of soybeans. USDA issued an official release on the announcement. It did not include a timeline for the purchases. CNBC reported the Chinese had offered to guarantee purchases of $1.2 trillion dollars of U.S. goods. Again, there was no timeline issued and this point has not been confirmed by any other outlet, the White House, or the Chinese.

During the week the trade discussions in Washington, D.C. pointed to five MOU’s. These Memorandums of Understanding included one on agriculture and were how U.S. Trade Representative Robert Lighthizer had decided to break down the issues in order to tackle them; agriculture, non-tariff barriers, services, technology transfer & intellectual property.

President Trump during the Oval Office meeting Friday pushed aside the MOU’s. He interrupted Trade Representative Lighthizer in front of the Chinese. Lighthizer was trying to explain how the MOUs would build the foundation of a trade deal. Mr. Trump stopped him and said, “I disagree. I think that a memorandum of understanding is not a contract to the extent that we want.” Lighthizer agreed that the term MOU would not be used again.

The important point in this exchange is likely not the MOU discussion. The President interrupted and corrected his lead trade negotiator in front of the Chinese delegation. Clearly, if a trade deal is to be struck it can only be done one-on-one between Presidents Trump and Xi. They may meet next month at Mar-A-Lago.

Mr. Trump has long focused on closing the trade gap with China. The other issues have not been of very much importance to him although he does mention China stealing and intellectual property rights. A trade deal with China is one of the President’s campaign promises. The dazzling $1.2 trillion number CNBC reported might be very enticing to a man who has had a habit of fulfilling his campaign promises.

If it is completed in this fashion, without enforcement mechanisms or real intellectual property rights protections, then as President Trump has said recently Democrats won’t go along. Republicans are likely to stay mum as the deal sets idle in Congress and simply becomes a presidential election year rallying cry. Presidents negotiate trade deals. Congress approves them.



Profile of USTR Lighthizer

NPR profiled Trade Representative Lighthizer this week. Please take six minutes to listen. It’ll be worth your while to know a whole lot more about the man leading the trade negotiations with China.




USDA Ag Outlook Forum

This week USDA put on its 95th Annual Agricultural Outlook Forum. It provides some initial numbers the trade uses to project the 2019 growing season into the markets until official USDA reports are issued. The first supply and demand report for the 2019/20 growing season will be issued in May. The March 29 Prospective Plantings report will provide survey results of what farmers think their acreage mix will look like this year. Here you will find some of the powerpoint slides U.S.D.A. Chief Economist Robert Johansson presented in the opening session and the full supply and demand tables presented Friday morning.


You may watch the full opening session of the 2019 USDA Agricultural Outlook Forum. It took place in Washington, D.C. February 21 and 22.





























Corn Acreage in 2019

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The number of acres of corn planted this spring will be a key factor in determining where the price of corn goes. University of Illinois Agricultural Economist Todd Hubbs took up the issue in this week’s farmdocDaily article.

He starts with a historical graph. It shows the principal crop acres in the United States and how those have changed since 1997. Both corn and soybean acreage have increased. Combined they’re up about 10 percent over the past two decades.



Illinois’ Todd Hubbs uses that history to help put the number or corn and soybeans acres into perspective, “When we look at the harvest month corn to soybean futures price ratio this year it has been about 2.37. There is a definite signal in this graph from about 2006 to 2018 that if you are above 2.4 in that ratio, there will be less corn acreage. If you are below 2.3 there will be more corn acreage. We are, today, sitting right in between those. We’ve seen problems with field work in large parts of the corn belt. We’ve seen fertilizer and other input costs go up on corn. So, the idea that we are going to see a massive increase in corn acreage could happen, but under the current price structure we might not see the kind of corn acreage we think we are going to see.”



Hubbs says he used the 2019–20 futures prices to forward calculate a seasons average cash price for new crop corn. His calculation points to $3.81 per bushel. He then figured a stocks to use ratio that would fit that number, “I think an 11% stocks to use ratio in 2019–2020 would give us $3.81. If consumption is constant at 14.8 billion bushels from this marketing year to the next, that would put corn acreage around 91.7 million at a national trend line yield of 174.6 bushels to the acre.”

Finally, Hubbs says there isn’t a lot of weather premium priced into new crop corn futures. He also says there isn’t much of premium built in for a possible trade deal with China. Hubbs thinks that may be just as bullish for corn as it is for soybeans. Right now he thinks the 2.37 soybean/corn ratio feels high if the expectation is for a substantial increase in corn acreage.



Expected Corn versus Soybean Returns in 2019



by Gary Schnitkey, University of Illinois
see full farmdocDaily article and video

Two factors have changed between the planning periods in 2018 and 2019. First, expected soybeans prices are lower in 2019 as compared to 2018. A reasonable way of forming expectations of cash prices at harvest is to use current bid prices for fall delivery of grain. In 2018, fall delivery prices for soybeans in the month of February averaged about $9.80 in East-Central Illinois. In 2019, fall delivery prices are roughly $.75 per bushel less at $9.05 (see Table 1). At the same time, fall delivery prices for corn are roughly the same at $3.70 per bushel. An $.75 decline in soybean price reduces expected soybean returns by $45 per acre given a soybean yield of 60 bushels per acre ($45 = .75 lower price x 60 bushels yield).



Second, costs have increased, with a primary contributor being increases in nitrogen fertilizer prices. Throughout much of 2018, anhydrous ammonia prices were in the low $500 per ton range (see Table 2). So far in 2019, anhydrous ammonia prices have averaged $607 per ton in January and $613 in February (see Table 2). Fall applications of nitrogen were limited in 2018 due to wet soil conditions, leading many farmers to have to price nitrogen in 2019. These farmers likely will pay around $100 per ton more for anhydrous ammonia in 2019 as compared to 2018. If 220 pounds of anhydrous ammonia are applied per acre, leading to an application of 180 pounds of elemental N (180 = 220 pounds x .82 N analysis of anhydrous ammonia), nitrogen fertilizer costs would increase in 2019 over 2018 levels by $11 per acre ($100 price increase per ton x 220 pounds of anhydrous ammonia per acre / 2000 pounds per ton).



The decrease in soybean price increases the relative profitability of corn. The increase in nitrogen fertilizer price decreases the relative profitability of corn, partially offsetting the impacts if the soybean price increase.

2019 Corn and Soybean Budgets
Table 3 shows 2019 corn and soybean budgets for high-productivity farmland in central Illinois (see farmdoc for 2019 Crop Budgets). These budgets incorporate price and cost changes between 2018 and 2019. Two notes about these budgets:
  • Yields are 213 bushels per acre for corn-after-corn and 63 bushels per acre for soybeans-after-corn. These are trend yields. In recent years, yields in Illinois have been above trend. Corn yields averaged 20 bushels above trend from 2014 to 2018 (farmdoc daily, January 3, 2018) while soybean yields have averaged 6.5 bushels above trend (farmdoc daily, December 11, 2018).
  • Prices used in budgets are $3.60 per bushel for corn and $8.50 per bushel for soybeans. The corn price is near fall delivery bids while the budgeted soybean price is about $.55 per bushel below the fall delivery bid. The lower budgeted soybean price reflects a general pessimism about soybean prices resulting from expected large supplies relative to demand (see farmdoc daily, January 28, 2019). This lower soybean price will decrease soybean profitability relative to corn, suggesting more of a shift to corn than a higher soybean price.


Operator and land returns are $188 per acre for corn and $180 per acre for soybeans, suggesting that corn will be more profitable than soybeans. However, this difference in profitability does not suggest a large shift in acres to corn. Most farms in central Illinois have a corn-soybean rotation, necessitating a move to corn-after-corn to grow more corn. Corn-after-corn returns are projected at $137 per acre, which are less than the $180 per acre soybean-after-corn return. These lower corn-after-corn returns suggest maintaining a corn-soybean rotation.

Other Budget Values Operator and land returns shown in Table 3 were recalculated for two different scenarios. First, a $9.00 soybean price was used to calculate soybean returns. The $9.00 price is close to fall bids. Given that corn prices do not change, operator and land returns for corn remain the same as those shown in Table 3:
  • corn-after-soybeans: $188 per acre, and
  • corn-after-corn: $137 per acre,
while soybean returns increase to:
  • soybeans-after-corn: $211 per acre, and
  • soybeans-after-two-years-corn: $229 per acre.
As would be expected, this price scenario increases soybean profitability relative to corn. Current forward bids do not suggest a shift to corn from a profitability standpoint.

The second scenario maintains the corn and soybean prices at $3.60 and $8.50, respectively, but increases corn yields by 20 bushels per acre and soybean yields by 6 bushels per acre. This scenario reflects a situation where budgets are more optimistic than trend yields due to high yields in recent years. In this case, operator and land returns are:
  • corn-after-soybeans (233 bushels per acre): $260 per acre
  • corn-after-corn (223 bushels per acre): $209 per acre
  • soybeans-after-corn (69 bushels per acre): $231 per acre
  • soybeans-after-two-years-corn (71 bushels per acre):$248 per acre
Higher yields increase returns and also increase the relative profitability of corn. However, corn-after-scorn is less profitable than soybeans-after-corn. These projections do not suggest that growing more corn would be more profitable than maintaining soybean acres given that both crops have above trend yields at 2013–2018 levels.

Summary and Conclusions
Current fall delivery prices do not suggest that switching to more corn away from soybeans will result in higher profitability on high-productivity farmland in central Illinois. Due to high relatively corn yields, central Illinois is one of the most profitable areas to grow corn relative to soybeans, If central Illinois budgets do not suggest a switch to corn, budgets in less productive areas likely will not suggest a shift from soybeans to corn.



2018 Ethanol Plant Losses
see full farmdocDaily article

University of Illinois Agricultural Economist and noted ethanol industry specialist Scott Irwin wrote an article detailing the financial losses the industry experienced last year. Use the link above to read the full article. Here’s the paragraph Irwin penned on the potential implications for ethanol going forward.

“The ethanol industry in 2018 experienced its first losing year since 2012, thereby ending a run of five consecutive years of positive returns. The estimated loss for a representative Iowa ethanol plant in 2018 was -$2.2 million. While large, the 2018 loss was still far less than the -$6.7 million loss in 2012. The evidence points to overproduction as the driving force behind the low prices and financial losses experienced by ethanol producers during 2018. The fortunes of the U.S. ethanol industry are unlikely to improve until production and use are better balanced. This will require shuttering some production capacity, additional demand, or some combination of the two. The most optimistic scenario is additional demand for U.S. ethanol exports as part of a trade deal with China.” - Scott Irwin, University of Illinois

USDA Reports Provide Little Support for Corn and Soybeans

by Todd Hubbs, University of Illinois

The USDA finally released a set of highly anticipated reports on Friday. The results projected lower ending stocks for corn and soybeans during this marketing year. Despite lower ending stock forecasts, the results disappointed and produced a somewhat bearish outlook. The following discussion recaps developments in corn and soybean crop fundamentals coming out of the reports and price implications moving forward.



Corn ending stock projections for the 2018–19 marketing year came in at 1.735 billion bushels, down 46 million bushels from the December forecast. Reduced corn production in 2018 drove ending stocks lower despite a 165 million bushel reduction in total use during the marketing year. Corn production is down 1.4 percent from the November forecast at 14.4 billion bushels. The harvested acreage estimate of 81.7 million acres is down from the November forecast of 81.8 million acres. Average corn yield of 176.4 bushels per acre is 2.5 bushels lower than the November forecast. December 1 corn stocks came in at 11.952 billion bushels. Total disappearance came in near 4.62 billion bushels during the first quarter of the marketing year, up from last year’s first quarter use by approximately 280 million bushels. Despite the lower domestic supply numbers and stronger first quarter use, lower consumption forecasts in key categories provide little support for corn prices.

The WASDE report forecast for U.S. corn during 2018–19 lowered corn use projections for feed and residual use, ethanol crush, and other food and industrial uses. At 5.375 billion bushels, the projection for corn feed use and residual moved lower by 125 million bushels. The ethanol use forecast decreased by 25 million bushels to 5.575 billion bushels. The lower ethanol use reflected the slowing ethanol production levels over the last month. Food, seed, and industrial use other than ethanol saw the consumption forecast lowered 15 million bushels on reduced corn use for high fructose corn syrup, glucose, and dextrose. Corn export forecasts maintained the 2.45 billion bushels forecast in December. The potential for increased corn usage seems increasingly dependent on continued economic growth and the resolution of the current trade impasse.

World ending stocks for corn increased by almost 40 million bushels from December forecasts. The increase focused on stronger production in key growing areas. In particular, Argentine corn production forecasts totaled 1.81 billion bushels, up from last year’s 1.26 billion bushels. Brazil’s corn production forecast stayed at 3.72 billion bushels this year. In total, Brazil and Argentina production forecasts exceed 2017–18 production estimates by 1.04 billion bushels. Projections of corn exports from Argentina and Brazil sit at an additional 492 million bushels each above last marketing year. Given the increase in South American production, the evolution of crop conditions in the region bears monitoring as we move into 2019.

The forecast for soybean ending stocks fell to 910 million bushels. Despite the 45 million bushel reduction to ending stocks, the current projection remains record high. Soybean production came in 56 million bushels lower than the November forecast at 4.54 billion. The harvested acreage estimate of 88.1 million acres is down from the November forecast of 88.3 million acres. Average soybean yield of 51.6 bushels per acre is 0.5 bushels lower than the November forecast. While the expected reduction in soybean production materialized, consumption continues to exhibit strong crush levels and weak exports this marketing year.

The WASDE report increased the soybean crush forecast by 10 million bushels to 2.09 billion bushels. The change in the crush projection reflects strong crush numbers through January. Soybean exports saw the forecast lowered by 25 million bushels to 1.875 billion bushels. Considerable uncertainty remains in export potential in 2019 as the sporadic nature of trade talks with China unfold. Total use fell by 15 million bushels on weaker export projections to 4.092 billion bushels. The consumption for this marketing year holds the potential for deterioration if the trade war escalates and increased competition out of South America materializes.

World production forecasts for the marketing year decreased by 301million bushels to 13.26 billion bushels on the smaller U.S. and Brazilian crops. The Brazilian soybean production forecast decreased by 183.72 million bushels over the December forecast to 4.3 billion bushels. Reports out of Brazil indicate this number may fall further before the final crop estimate is complete. The Argentinian soybean production forecast fell slightly to 2.02 billion bushels on reduced acreage. The Brazilian soybean export forecast dropped by 55 million bushels reflecting the decreased crop production levels. Forecasts for Brazil and Argentina soybean exports sit at 3.15 billion bushels over the marketing year, up from last marketing year’s estimate of 2.88 billion bushels.

While the ending stock projections for both crops fell, the USDA maintained price projections for the marketing year at the December mid-point ranges for corn and soybeans at $3.60 and $8.60 respectively. Barring a resolution to the trade issues with China or a significant deterioration in the South American crop, soybean prices are untenable at current levels. Corn prices appear set to remain flat and range bound until the March Prospective Planting reports provide an initial indication of crop acreage in 2019.

January Crop Report Yield Expectations

The January USDA reports have been delayed until further notice because of the government shutdown. It is expected once these numbers are released the changes in the national yields for corn and soybeans could be positive for price.

The last time USDA updated corn and soybean yields was in the month of November. Both crops saw a drop in predicted yield for the 2018 harvest. This drop has been since complicated by harvest problems. Todd Hubbs from the University of Illinois says history can sometimes be a guide to how the January Crop Production report might change. More often than not when the yields from October to November go down, the U of I commodities specialist says they drop again in January, “And what you see is when you see a yield change from November to October that is negative, we tend to see a similar change from January to November. Now it doesn’t always hold, but if that were to materialize we probably see a corn number around 177.2 bushels to the acre. I think it might be a little bit higher than that, but even if it is if we lose half to one bushel out of the current projection of 178.9, then that is really supportive for corn prices moving forward.”

Hubbs says a similar pattern holds for soybean yields. On average he says that’s been about a quarter of a bushel per acre… a little better than that actually… and if it came to fruition this year it would put the 2018 soybean yield at 51.8 bushels to the acre. That would clearly be supportive to price says Hubbs, even though the trade issues with China are continuing, “We could also see some acreage come out of both corn and soybeans as harvest was really tough in some places. Particularly out in Kansas and the southern plains. This has more implications for winter wheat seedings than it does for anything else. Right now, by my projections, I think winter wheat acreage will be down by one-point-five percent from last year’s 32.5 million acres. This may have implications for both corn and soybean acreage in the southern plains as we move into 2019 and think about what kind of acreage we will have.”

The implication being a potential increase in corn or soybean acreage in that area. USDA says it will announce the date for the release of the January reports once the government shutdown has ended.

January Crop Report Yield Expectations

The January USDA reports have been delayed until further notice because of the government shutdown. It is expected once these numbers are released the changes in the national yields for corn and soybeans could be positive for price.

The last time USDA updated corn and soybean yields was in the month of November. Both crops saw a drop in predicted yield for the 2018 harvest. This drop has been since complicated by harvest problems. Todd Hubbs from the University of Illinois says history can sometimes be a guide to how the January Crop Production report might change. More often than not when the yields from October to November go down, the U of I commodities specialist says they drop again in January, “And what you see is when you see a yield change from November to October that is negative, we tend to see similar change from January to November. Now it doesn’t always hold, but if that were to materialize we probably see a corn number around 177.2 bushels to the acre. I think it might be a little bit higher than that, but even if it is if we lose half to one bushel out of the current projection of 178.9, then that is really supportive for corn prices moving forward.”

Hubbs says a similar pattern holds for soybean yields. On-average he says that’s been about a quarter of a bushel per acre… a little better than that actually… and if it came to fruition this year it would put the 2018 soybean yield at 51.8 bushels to the acre. That would clearly be supportive to price says Hubbs even though the trade issues with China are continuing, “We could also see some acreage come out of both corn and soybeans as harvest was really tough in some places. Particularly out in Kansas and the southern plains. This has more implications for winter wheat seedings than it does for anything else. Right now, by my projections I think winter wheat acreage will be down by one-point-five percent from last year’s 32.5 million acres. This may have implications for both corn and soybean acreage in the southern plains as we move into 2019 and think about what kind of acreage we will have.”

The implication being a potential increase in corn or soybean acreage in that area. USDA says it will announce the date for the release of the January reports once the government shutdown has ended.

Reviewing Prices and Market Facilitation Payments

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As the trade conflict with China continues, prices for many agricultural commodities remain relatively low. Illinois corn and soybean prices dipped to new lows in September, coinciding with the latest rounds of tariffs.



The difference between selling an entire crop at spring forward bid prices compared to the September average cash prices makes a substantial difference in income on an average central Illinois grain farm.



University of Illinois Agricultural Economist Gary Schnitkey reviews how this plays out on a 1700 acre corn and soybean farm in Illinois this year, and what the prospects look like for next year.

Jul 23 | USDA Weekly Crop Progress Reports

Around the nation, USDA reports 81% of the corn crop is silking. The rolling 5yr-avg is 62%. 18% of the crop has entered the dough stage, the 5yr-avg is 8%. The corn crop is in slightly better condition than last week as is the soybean crop. It now stands at 70% good or excellent with 44% of the crop setting pods. The 5yr-avg is about half that amount. Winter wheat harvest is 80% complete.

May 10 | USDA WASDE ReAct with Todd Hubbs

The monthly WASDE report for May 2018 introduced the first look at the new crop corn and soybean supply & demand tables. Todd Gleason has more with University of Illinois commodity markets specialist Todd Hubbs.







No Good Way for Perdue to Protect Farmers

President Trump has asked the Secretary of Agriculture to protect U.S. farmers from the trade dispute with China. However, there aren’t many options for Sonny Perdue.

Last week Sonny Perdue was on the road for his second RV tour of farm country. His first tour was last summer. That’s when he told producers he would be their salesman to the world. Now he’s being asked to be their protector in the face of trade restrictions, some in place others proposed, as President Trump sets about rectifying what he sees as unfair trade with China. However, Perdue isn’t saying what he’ll do for farmers and there may be a good reason that’s the case says University of Illnois Ag Policy Specialist Jonathan Coppess, “There are not a lot options for the Secretary when it comes to the covered commodities.”

Typically USDA lawyers will explain there is flexibility in the original CCC charter act and the general powers to improve prices. Yet, because Congress has stepped in and directed spending for commodities via programs like ARC and PLC, the Secretary’s administrative powers are limited.

Most of the heavy lifting to protect farmers from any trade war blowback then, says Coppess, would need to be done by congress.

Will Soybean Ending Stocks Get Larger



by Todd Hubbs, Agricultural Economist - University of Illinois
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Recent rumblings of potential tariffs by China on U.S. soybeans created a stir last week. While the market reacts to the uncertainty associated with trade policy, the upcoming WASDE report, on April 10, will update soybean use projections for this marketing year. The USDA may revise the forecast of ending stocks for soybeans during the current marketing year due to weaker than projected soybean export pace and stronger crush numbers.

The current USDA projection for soybean ending stocks during the 2017–18 marketing year sits at 555 million bushels, an increase of 130 million bushels since the November projection. The steady increase in ending stock projections is due to decreasing export projections. Current USDA soybean export projections for this marketing year are 2.065 billion bushels. On April 5, the Census Bureau released export estimates for February. The updated export estimates for soybeans brings totals for the first half of the marketing year to 1.433 billion bushels. Typically, soybean exports decline in the second half of the marketing year as South American production hits world markets. Due to this factor, the majority of soybeans tend to be exported in the first half of the marketing year.

Over the last decade, soybean exports during the first half of the marketing year averaged 76 percent of the final marketing year total. At the average pace, 2017–18 marketing year exports will come in at 1.886 billion bushels. While soybean exports should exceed this level, the current weakness in exports is reflected in five major export markets for soybeans. Through February, soybean exports to China, which typically accounts for 60 percent of U.S. exports, sit 11 percent behind the totals from the three previous marketing years during the same period. In conjunction with the lagging pace of Chinese exports, Japan and Indonesia sit 12 and 3 percent behind the pace of the previous three marketing years respectively. Mexico and Thailand imports of U.S. soybeans are up 3.2 and 110 percent under the same conditions.



Cumulative soybean export inspections through April 5 total 1.572 billion bushels. Through February of this marketing year, Census Bureau exports outpaced soybean export inspections by approximately 33 million bushels. If this difference continued, soybean exports through April 5 totaled 1.605 billion bushels. Soybean exports for the rest of the marketing year need to average 23 million bushels per week to reach the USDA projection. Soybean export inspections over the previous four weeks averaged 19.9 million bushels. Recent soybean export sales witnessed a jump last week as Brazilian export prices ran at a substantial premium to U.S. export prices. The sales indicate an expansion of purchases from buyers who typically leave the U.S. market to purchase Brazilian soybeans at this time of year.

If these buying opportunities continue, the potential for an uptick in export pace may be in order over the short run. At this time, soybean exports fall well short of the current projections and the possibility of a significant reduction in the soybean export projection appears likely.
While exports continue the weaker than projected pace, soybean crush is strengthening as the marketing year progresses. Current USDA projections for the 2017–18 marketing year crush sit at 1,960 million bushels. Estimates of monthly soybean crush from the Oilseed Crushings, Production, Consumption and Stocks report through February totaled 1.01 billion bushels. For the first half of the marketing year, USDA monthly crush numbers have run approximately 6.4 percent above last year’s crush estimates. Over the previous two marketing years, soybean crush during the first half of the marketing year averaged 51 percent of the final marketing year total. At this rate, the total crush for the marketing year would reach 1.98 billion bushels. Crush during the last half of the marketing year needs to total 950 million bushels to reach the USDA projection, 3 percent larger than last year over the same period.



In support of expanding crush levels, soybean meal exports are on pace to meet the 12.4 million short tons projected by the USDA. Through the first five months of the soybean meal marketing year, meal exports came in five percent above last year’s pace, at 5.508 million tons. Given a continuation of current soybean crush margins and export levels in soybean meal, the prospect of exceeding current USDA projections is quite high. While the USDA may not adjust crush totals in the upcoming report, the current crush pace indicates an increase of 20 million bushels in projected marketing year crush is feasible.

The potential for soybean crush levels to make up the difference for weak export totals is limited this marketing year. If the soybean export pace does not pick up substantially over the remainder of the marketing year, 2017–18 marketing year soybean ending stocks will increase. The current weather combined with trade policy issues make the soybean price susceptible to rapid changes as we move into planting season. A marketing plan for new crop soybeans should incorporate this information and provides pricing opportunities during near-term rallies.

Secretary Perdue Comments on Trade Disputes

Corn Use for Ethanol Update


University of Illinois Commodity Markets Specialist Todd Hubbs discusses prospects for the ethanol exports to Brazil and China with Extension Farm Broadcaster Todd Gleason.

by Todd Hubbs, University of Illinois
farmdocDaily article

The recent strength in ethanol production has led to speculation about changes to USDA’s estimate of corn used for ethanol in the pending WASDE report. Ethanol production for the week ending December 1 set a new ethanol production record with an average of 1.108 million barrels per day, continuing eight consecutive weeks of more than a million barrels a day of production. Currently, the WASDE forecast for corn consumption for ethanol production is 5.475 billion bushels, up 36 million bushels from 2016–17 marketing year estimates. The ability to surpass this projection is possible, but foreign demand for ethanol will be crucial as we move into 2018.

Domestic ethanol consumption is influenced by domestic gasoline consumption, due to the ethanol blending requirement, and the biofuels volume requirement associated with the Renewable Fuels Standard. The EPA final rulemaking for the Renewable Fuels Standard for 2018 was released on November 30. The renewable fuels volume requirement is set at 19.29 billion gallons for 2018, up slightly from the 19.28 billion gallons required in 2017. The conventional ethanol requirement is set at 15 billion gallons for 2018, the same as in 2017 and equal to the statutory requirement level. If the gasoline consumption forecast used by the EPA is correct, the E–10 blend wall will be near 14.3 billion gallons in 2018. The EPA believes an ethanol supply of 15 billion gallons is reasonably attainable in 2018 with a total domestic capacity of 16 billion gallons. Since the ethanol blending requirements did not change, the possibility for greater corn usage in 2018 due to blending is low unless gasoline consumption increases beyond current expectations.

According to the most recent Energy Information Agency (EIA) Short Term Energy Outlook, U.S. retail gasoline price is projected to average $2.45 per gallon in 2018, an increase of five cents from the current expected price in 2017. Despite the projection of higher gasoline prices, gasoline consumption is forecast at 143.27 billion gallons in 2018. The 2018 gasoline consumption projection is up from the 143.03 billion gallons projected for consumption in 2017. EIA’s forecast of ethanol production is set at 1.04 million barrels per day. If the EIA projection is correct, approximately 15.9 billion gallons of ethanol will be produced in 2018. To exceed the current USDA projections for corn use in ethanol, exports need to repeat the impressive performance of the 2016–17 marketing year.

Ethanol export numbers are available from U.S. Census trade data for 2017 through October. For the 2017 calendar year, U.S. exports of ethanol are at 1.09 billion gallons, up almost 16.6 percent from the similar period in 2016. A note of caution is warranted when considering ethanol exports in the current marketing year. During the first two months of this marketing year, ethanol exports are down 19 percent from previous marketing year levels. The large reduction is due to drastically lower export levels to Brazil and China. Chinese imports of U.S. ethanol are minimal thus far in the marketing year. Brazilian ethanol imports from the U.S. are down 49 percent from last year for the first two months. During the 2016–17 marketing year, U.S. ethanol exports totaled 1.37 billion gallons, with exports to Brazil comprising 36.5 percent of the total. The imposition of the 20 percent tariff rate quota on Brazilian ethanol imports on September 4 is curtailing Brazilian imports. The tariff becomes active at export levels greater than 150 million liters per quarter (39.6 million gallons) and restarted in December. U.S. ethanol exports will require increases in other markets to meet or exceed the export levels attained during the 2016–17 marketing year.

Corn consumption levels for ethanol production during this marketing year is provided in the USDA Grain Crushing and Co-Product Production report. Grain crushing for fuel alcohol is available through October. For the first two months of the marketing year, 915.6 million bushels of corn has been processed for ethanol. The grain crush is up 2.8 percent from 2016–17 marketing year processing numbers over the same period. Using EIA weekly ethanol production numbers, November ethanol production averaged over 1 million barrels per day. These production levels place corn use for ethanol production in a range of 555 to 565 million bushels for the month. With a conservative estimate of corn crush in November, total corn consumption for ethanol production through the first quarter of the marketing year would be well above the current WASDE projection. While this is an encouraging sign for corn use, ethanol stocks have risen for five consecutive weeks to reach 22.5 million barrels as of December 1, a level not attained since June. During the same period last year, ethanol stocks fell around 700,000 barrels under strong export demand.

The December WASDE report may increase the corn use in ethanol projection due to the strong production during the first quarter of the marketing year. Lower ethanol export totals and growing ethanol stocks may create a wait and see scenario. Another strong year of ethanol production is highly likely, but flat projections for gasoline consumption and lower ethanol export levels may limit growth over last marketing year’s performance.