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The weather, China and Donald Trump will have to all cooperate to offset ample grain stocks

The Jan. 12 USDA report day was neutral for corn and soybeans, bearish for wheat. The good news from that report for corn and soybeans — it was not a bearish report. The bad news from that report for corn and soybeans — it was not a bullish report. The Jan. 12 report day has been long anticipated in the market to provide additional insights into price direction for corn, soybeans, and wheat. The trade had expected the U.S. corn yield to increase while the U.S. soybean yield was expected to decline. Both took place as expected. USDA put the U.S. 2017 corn yield at 176.6 bushels per acre, up from the November estimate of 175.4.

That same report had the U.S. soybeans yield reduced slightly to 49.1 bushels per acre. Soybean exports were cut resulting in an increase for ending stocks. All three events were anticipated, providing no surprise for the markets. The surprise for the day came for wheat. U.S. wheat acres were higher than expected and quarterly grain stocks were higher than expected. In addition, Russia wheat production was higher than expected.

I recently attended the annual ADMIS broker conference. Here are some items I gleaned from that conference. Russia continues to be on a break-neck pace for wheat production. This coming year they are expected to produce 85 million tons of wheat. Their goal is to produce 100 million tons in the next five years as their yields are up an astounding 80% in only five years. Gone are the 1980s and the old collective farm method of raising grain. They have made huge incentives to their farmers as 25 years ago they were the world’s largest importer of grains. Today they are the world’s largest exporter of grains. The U.S. percentage of corn, soybean, and wheat exports has shrunk drastically. Twenty years ago the U.S. accounted for 62% of the world’s exports for corn, soybeans, and wheat. Today the U.S. accounts for just 28%.

Continuing from that conference, the U.S. is awash with grain and huge ending stocks. Global increases of land added into grain production means that more land in the world is now producing grains. With current costs, the U.S. farmer now occupies the unfortunate distinction of being the highest cost producer in the world for corn, soybeans, and wheat. As costs have increased here in the U.S., they have not increased at the same rate for other producers around the world. The stark reality is that U.S. farm income is only 50% of that seen in 2010-2012. World demand for grain has been increasing along with world grain production.

It will take a weather problem not evident today to help move us out of this price conundrum. China is moving at breakneck speed to get 36 mega ethanol plants into production within the next two to three years. The goal is to drastically reduce their well-documented huge pollution problem as an untold number of coal consuming factories have already been mothballed. Those new plants could be consuming 1.5 billion bushels of corn annually when in full production. Down the road the U.S. could once again be exporting corn into China. Also learned was to ignore the notion of China having economic woes. Their economy is growing at 6% to 10% a year. A 10% yearly growth means their economy is doubling in just seven years. While China admits being a communist country, they have embraced beyond measure the capitalist economy and its benefits.

Agriculture has some worries ahead with the continued talk of NAFTA being dismantled. One speaker at the Florida conference had concerns with President Trump and NAFTA as this thought was revealed: “President Trump likes to break things to put them back tougher. NAFTA put back together gains nothing for agriculture the second time around.”

Corn export demand is showing signs of moving out of the doldrums. U.S. export sales of corn mid-January were 74 million bushels, the second highest weekly total since Sept. 1. South America weather problems could bolster U.S. corn and soybean exports.

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