When I present a commodity outlook presentation, I typically include a “What If” discussion to help farmers understand how changes in production or demand could affect price.  There are plenty of “What Ifs” in the grain market this year.

The markets are trying to understand the size of the 2019 crops because of the historically late plantings. Similarly, the trade disruption with China and unsigned trade agreements with Mexico and Japan are providing export uncertainty for soybeans and corn.

There are several rumors about verbal agreements with China and Japan, but no agreements have been signed or passed by congress to date. This article will consider how lower production, along with stronger than expected demand, would affect ending stocks for corn, soybeans, and wheat.

USDA projects the 2019 corn crop to be 641 million bushels smaller than last year’s crop due to an 8 bushel/acre lower yield. Even with the late-planted corn crop across the Midwest region, USDA surveys show a slight increase in harvested area from 2018. USDA forecasts the total supply for corn in 2019 to be 644 million bushels lower than last year.

Corn

USDA projects total corn demand to be 459 million bushels below last year due to weaker exports and feed use. Ending corn stocks are projected at 1.9 billion bushels, which is a 185-million-bushel reduction from last year. The lower stock level is supporting a U.S. marketing-year average farm price of $3.80/bushel, up $0.19/bushel from last year.

The bullish “What If” story for corn would be through larger-than-projected exports. For this to happen, South America would have to experience production problems to the extent that makes U.S. corn price competitive. If total corn use increased by 385 million bushels, ending stocks would be 1.5 billion bushels, and the U.S. farm price could increase $4.10/bushel. 

Another bullish “What If” story for corn would be USDA reducing the size of the 2019 corn crop. However, the large corn beginning stocks will reduce the impact of a smaller corn crop on ending stocks and MYA price without also having increased use.  For example, a 150-million-bushel reduction in the size of the 2019 corn crop might add $0.10/bushel to the MYA corn price while increased use had a $0.30/bushel impact on price.

Soybean

USDA projects the 2019 soybean crop to be 878 million bushels smaller than last year’s crop. USDA projects the 2019 yield at 46.9 bushels/acre, which is 3.7 bushels smaller than 2018’s yield. The big surprise in soybeans is the 2019 harvested area is projected to be down 12 million acres from last year.  The sobering aspect of the soybean balance sheet is that an 878-million-bushel reduction in production only reduces total supply by about 400 million bushels. Beginning stocks, at 913 million bushels, dampens the impact of the lower production.

Soybean use is projected to increase by 56 million bushels from last year. Soybean crushing demand remains strong, but increased crush cannot compensate for much smaller exports. Regardless, ending soybean stocks at 460 million bushels is cutting the stocks level in half and is supporting a U.S. MYA price of $9.00/bushel.

A bullish “What If” story for soybeans would be a further reduction to the 2019 soybean crop. A 75-million-bushel reduction at current demand levels would imply soybean ending stocks at 385 million bushels and could add $0.45/bushel to the MYA price.

The better bullish “What If” soybean story involves larger than expected exports. If soybean exports increase by 200 million bushels, ending stocks would decline by 200 million bushels from the October 2019 estimate and would support a U.S. MYA price of $10.50/bushel. The combination of a smaller crop and larger exports would push stocks lower and prices even higher.

Wheat

The 2019 wheat balance sheet shows little change from last year with total supply and total demand projected to increase by 42 and 79 million bushels, respectively, from the 2018 marketing year. USDA projects wheat ending stocks at 1.04 billion bushels, which is a 37-million-bushel reduction from 2018. USDA projects the wheat MYA price at $4.70/bushel, which is $0.46/bushel less than last year’s price. The 2018 crop had higher prices at harvest due to production uncertainty in the Great Plains wheat crop. The production uncertainty was not a factor this year to support a higher MYA price.

The “What If” for wheat would require a production problem in an export competitor country that shifts exports to the United States. The U.S. wheat export market share is about 15%, which makes the U.S. the residual supplier to the world. Improved exports will lower ending stocks but may not move prices substantially higher.

Stronger exports are needed to trim corn and soybean stocks and push prices higher. The trade disruptions are political issues and require time for politicians to form an agreement. An agreement that includes large agricultural purchases may provide excitement to the soybean market if the exports resume before the 2020 soybean crop is harvested.