Futures finished the week under pressure, with improved weather conditions and building doubt over a US/China trade resolution the leading causes of the set-back. Weather is non-threatening for the US which has limited the amount of risk premium needed in futures. A forecasted improvement to South American weather added market pressure, especially to soybeans. News that Russia has contracted African Swine Fever weighed on the markets as well.
Soybeans dropped today following news that President Trump is looking for a full trade resolution with China, not a partial deal. President Trump further stated that he does not need a trade war resolution prior to the 2020 election. News that the Chinese delegation cut their US visit short today added to the negative tone is soybeans. Delegates from China were set to visit US farms in Nebraska and Montana next week, but as of now, the visit to Montana has been canceled.
We are already starting to see projections released for next year's acres in the United States. Thoughts are we will see plantings of 95 million on corn and 85 million on soybeans. There are two very different ways these projections are being viewed. One is that we will need plantings this high to make up for losses this year. Another is that unless we see a build in demand, acres this high will cause a significant build in corn and soybean reserves, and pressure values.
The real question is what these acreage sizes will have on corn and soybean reserves. If all other factors remain constant from this year, corn acres of 95 million would lead to a potential 2020/21 carryout of 3.4 billion bu. While this seems like a stretch, it is quite possible in today's market environment. The same scenario in soybeans would point to a more tolerable carryout of 740 million bu.
While weekly export sales totals were impressive this week, they failed to get much of a reaction in the market. According to data from MidCo Commodities, cumulative US corn sales for the marketing year stand at 341 million bu. This is 16.6% of yearly projections. Historically we have sold 25.1% of our projected corn sales by this time. Cumulative soybean sales now stand at 411 million bu, which is 16.4% of out expected total. The five-year average on soybean sales for this time is 24.2%.
When it comes to US corn sales, Mexico has turned into our largest customer. Mexico booked 79% of the corn the US sold last week, and yearly sales to Mexico are 55% of total commitments. Trade is closely monitoring Mexico's buying interest to see if it changes ahead of the proposed USMCA agreement.
Biofuel comments from EPA administrator Andrew Wheeler were concerning for the ethanol industry. Administrator Wheeler has stated that blending waivers have not impacted ethanol demand. Wheeler further states that ethanol demand has been on an uptick recently. This is contrary to what has been seen in recent weekly reports and data from others in the renewable fuel industry.
Trade is starting to receive early US yield data, but so far, has failed to react. This is not uncommon as early yield reports tend to be highly suspect, and this year is no different. Trade is also expecting to see high variability in US yields this year, which is what we are already seeing. One thing that is consistent is reports of "better than expected" yields in many regions. Trade will focus more on yields when harvest moves into the Corn Belt.
While not many traders expected one, the lack of a trade resolution with China this week was negative for markets. This was not just for grains and soybeans, but for livestock as well. There were hopes that China would give an indication of elevated meat demand from the US but this did not happen. The US is starting to see beef and pork supplies grow at a faster rate than demand which is weighing on futures. The lack any export sales to China this week was also negative for livestock futures today, especially hogs.
