Grain Marketing Update: Supply, Demand, Trade, and 2019 Price Outlook

Kentucky-Tennessee Grain ConferenceFebruary 8, 2019, Russellville, KY

S. Aaron SmithAssistant Professor and Extension Economist

Department of Agricultural and Resource EconomicsUniversity of Tennessee Institute of Agriculture

Email: aaron.smith@utk.eduWebsite: http://cropeconomics.tennessee.edu/

Ph:865-974-7476

Overview

• Corn and Soybean Supply and Demand• Trade/Tariffs • 2019 Price Outlook / Marketing

CORN SUPPLY AND DEMANDSigns of optimism?

173177.3

156.9

020406080

100120140160180200

1980

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2019

Yiel

d (b

u/ac

re)

Tennessee Corn Yield, 10-, 20-, and 30-Yr Trendline Yield, 1980-2019

Actual 10-Yr 20-Yr 30-Yr

2019 Trend Yield:156.9 to 177.3 bu/acre

1.30 1.62 1.67 1.71 1.13 0.99 0.82 1.23 1.73 1.74 2.29 2.14 1.78

14.63

15.03

0

2

4

6

8

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12

14

16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

on B

ushe

lsUS Corn Production, Consumption, and Stocks, 2006-2018

Stocks Production Consumption

• Stocks remain high, but trending lower

• 2019 planted acres are likely to be up

• Weather = unknown

2012 2013 2014 2015 2016 2017 2018Days o Hand 27 33 46 46 57 53 43stocks 0.82 1.23 1.73 1.74 2.29 2.14 1.78

0

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60

0.0

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Days

on

Hand

Stoc

ks (b

illio

n bu

shel

s)U.S. Corn Stocks and Days on Hand, 2012-2018

Days on Hand = Stocks / (Consumption/365)

USD

A W

ASD

E /

Proj

ecte

d 20

19/2

02018/19 2019/2020 Change

Acres Planted (Million) 89.1 93.2 4.1Acres Harvest (Million) 81.8 85.6 3.8U.S. Yield (Bu/Acre) 178.9 177.0 -1.9Beg. Stocks 2,140 1,781 -359Production 14,626 15,145 519Imports 45 50 5Total Supply 16,811 16,976 165Feed and Residual 5,500 5,550 50Ethanol 5,600 5,650 50Food, Seed & Industrial 1,480 1,480 0Exports 2,450 2,600 150Total Use 15,030 15,280 250U.S. Ending Stocks 1,781 1,696 -85U.S. Avg. Price ($/Bu) $3.25-$3.95 $3.50-$4.35 -0.33U.S. Stocks/Use 11.8% 11.1% -0.75%

Cor

n Yi

eld,

200

6-20

18 US Yield (bu/acre) Global Yield (bu/acre2006 149.1 76.32007 150.7 79.12008 153.3 80.72009 164.4 83.72010 152.6 81.32011 146.8 82.52012 123.1 77.92013 158.1 87.02014 171.0 89.22015 168.4 86.02016 174.6 92.02017 176.6 89.92018 178.9 93.0Average Change per Year 2.3 1.3

13.8 14.2 13.6 15.1 14.6 14.6

9.8 9.8 10.4 10.4 10.2 10.1

8.8 8.9 8.8 9.6 9.7 9.4

05

101520253035404550

2013 2014 2015 2016 2017 2018

Billi

on B

ushe

lsGlobal Corn Production By Country, 2013-2018

United States China ROW Brazil European Union Argentina Ukraine

40.4 41.639.9

44.2 42.4 43.3

Global Corn Exports and Consumption, 2018Corn Exports (billion

bushels)US 2.45Brazil 1.14Argentina 1.10Ukraine 1.10Russia 0.12ROW 0.53

Corn Consumption (billion bushels)

United States 12.58China 10.87European Union 3.27Brazil 2.62Mexico 1.72ROW 13.22

4.3 4.9 5.4 5.2 4.5 4.9 5.78.4

11.0 12.3 13.8 13.4 12.2

43.3

44.3

05

101520253035404550

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

on B

ushe

lsGlobal Corn Production, Consumption and Stocks, 2006-2018

Stocks Production Consumption

143

216

306338

319 309274

35 45 51 47 58 52 44

0

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100

150

200

250

300

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400

2012 2013 2014 2015 2016 2017 2018

Days

-on-

Hand

China and ROW Corn Days on Hand, 2012-2018

Days on Hand = Stocks / (Consumption/365)

SOYBEAN OUTLOOK

Uncertainty hangs over the market / even with a resolution to the trade issues with China, there is still supplies that will limit prices

Soybean Harvest 2018: A Harvest to Forget

• Wide spread harvest issues – Soybeans left in the field– Price dockage for quality– Crop insurance quality

adjustments• Trade disruptions / over supply• Low futures prices / weak basis

83.7

88.3

0

10

20

30

40

50

60

70

80

90

100

1989

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2019

Mill

ion

Acre

sU.S. Soybean Harvested Acres, 1989-2018

5148

45

0

10

20

30

40

50

60

1980

1981

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Yiel

d (b

u/ac

re)

Tennessee Soybean Yield, 10-, 20-, and 30-Yr Trendline Yield, 1980-2019

Actual 10-Yr 20-Yr 30-Yr

2019 Trend Yield:45 to 51 bu/acre

0.570.21 0.14 0.15 0.22 0.17 0.14 0.09 0.19 0.20 0.30 0.44

0.96

4.60

4.11

0.00.51.01.52.02.53.03.54.04.55.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

on B

ushe

lsU.S. Soybean Production, Consumption, and Stocks, 2006-2018

Stocks Production Consumption

• Stocks have been increasing (dramatic increase in 2018)• 2019 planted acres are likely to be down• Weather = unknown• Trade a big wild card

2012 2013 2014 2015 2016 2017 2018Days-on-Hand 16 10 18 18 26 37 85 Stocks 0.14 0.09 0.19 0.20 0.30 0.44 0.96

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0102030405060708090

Stoc

ks (b

illio

n bu

shel

s)

Days

on

Hand

U.S. Soybean Stocks and Days on Hand, 2012-2018

Days-on-Hand Stocks

Days on Hand = Stocks / (Consumption/365)

USDA WASDE / Projected 2019/20June 2018/19 December 2018/19 Dec-June 2019/20

Acres Planted (Million) 89 89.1 0.1 84.5Acres Harvested (Million) 88.2 88.3 0.1 83.7U.S. Yield (bu/acre) 48.5 52.1 3.6 51.5Beg. Stocks 505 438 -67 955Production 4,280 4,600 320 4,313Imports 25 25 0 25Total Supply 4,810 5,063 253 5,293Crushing 2,000 2,080 80 2,150Exports 2,290 1,900 -390 2,200Seed and Residual 135 128 -7 125Total Use 4,425 4,107 -318 4,475U.S. Ending Stocks 385 955 570 818U.S. Avg. Price ($/bu) $8.75-$11.25 $7.85-$9.35 -1.4 $8.25-$9.75U.S. Stocks/Use 8.7% 23.3% 14.6% 18%

11.6312.83 12.47 13.57

3.36 3.93 3.93 4.30 4.41 4.60

3.193.57 3.55

4.21 4.42 4.481.96

2.26 2.162.02 1.39 2.04

0

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4

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2013 2014 2015 2016 2017 2018

Billi

on B

ushe

lsGlobal Soybean Production by Country, 2013-18

US Brazil Argentina ROW

10.4111.78

0

2

4

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12

14

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Billi

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ushe

lsGlobal Soybean Consumption, 1964-2018

Source: USDA-FAS - https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

2.32 1.92 1.58 2.21 2.57 1.99 2.07 2.32 2.89 2.98 3.58 3.72 4.24

13.57

12.92

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Billi

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ushe

lsWorld Soybean Production, Consumption, and Ending Stocks, 2006-2018

Ending Stocks Production Consumption

Global Consumption - increasing ~417 million

bushels per year- More stable than production

(R2 of 0.9627)Global Production- increasing ~459 million

bushels per year- Less stable than consumption

(R2 of 0.896)• Stocks up 7 consecutive years• South American production,

projected US Acres, and trade will dictate world prices

0.715 0.928 1.166 1.236 1.303 1.268 1.5180.1410.092

0.191 0.197 0.302 0.438

0.955

0.564 0.5830.705 0.689

0.985 0.924

0.784

0.4700.531

0.645 0.630

0.759 0.865

0.729

0.1820.185

0.185 0.226

0.234 0.226

0.252

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019

Billi

on B

ushe

lsGlobal Soybean Stocks by Country, 2012/13-2018/19

Argentina United States Brazil China ROW

61 6573

6573

8166

85 91104 106

124 124

144

0

20

40

60

80

100

120

140

160

2012 2013 2014 2015 2016 2017 2018

Days

on

Hand

China and ROW Soybean Stocks Days on Hand, 2012-2018

China ROW

Days on Hand = Stocks / (Consumption/365)

Corn and Soybean Summary• Planted acres in the U.S. in 2019?• Upheaval in global trade – What emerges short and long term?

– Is it reasonable to expect large Agricultural /energy purchases in a trade resolution with China?

• Increased South American production?• China import demand- African swine fever, ration substitution and

increased domestic production– Where will China buy soybean from 2019? And how much?

• Strong global (U.S.) economy and demand is important to alleviate protein supplies.

TRADE AND TARIFFSAre you an optimist or a pessimist?

Tariffs – tax or duty on a product that crosses national boundaries.

• Import tariff– Most common, imposed on imported goods.

• Export tariff– Unconstitutional in U.S., imposed on exported goods.

• Protective tariff– Designed to protect producers from import competition.

• Revenue tariff– Imposed to raise tax revenue.

USDA Outlook for U.S. Ag. Trade: Nov. 2018• Corn is forecast at $11.8 billion, up $600 million on

higher export volumes (competitive U.S. corn prices) • Oilseeds and products exports are projected at $27.9

billion, down $2.3 billion from August expectations. – Record U.S./Brazilian soybean production continues to

pressure soybean prices lower.– Declining China soybean purchase.– Competition from Brazil and Argentina.

U.S

. Agr

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tura

l Exp

orts

(T

op 5

): 20

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0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

$ m

illion

Canada China Mexico Japan South Korea

Source: USDA-FAS, GATS Database

(6,000,000)

(5,000,000)

(4,000,000)

(3,000,000)

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U.S. 2018 less 2017 Soybean Exports by Destination country

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EXPO

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(MM

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2017 Total 2018 Total 2017 China 2018 China

U.S. Monthly Soybean Exports (Million Metric Tons)

8.00

8.50

9.00

9.50

10.00

10.50

11.00

11.50

12.00Pr

ice/

Basis

($/B

u)Brazilian and CBOT Soybean Prices ($/bu), 2017- 2018

Brazil (Paranagua) US (CBOT)

Price difference August 30: $8.20 (CBOT) vs. $10.04 Brazil = $1.84/bu

Trade and Tariffs: Final Thoughts• The U.S. appears to be resolving issues with many countries.

– KORUS (South Korea-U.S.– USMCA (NAFTA 2.0)– Bilateral with Japan?– EU/UK agreement? Will Ag be included?

• The EU is aggressively pursuing trade agreements with the world.– Japan, Canada, Mexico (revised), South America

• Is the trade war with China coming to an end? The deadline before higher tariffs kick in is March 1.

Estimated MFP Payments TennesseePayment

Rate

2018 Production

(TN)Estimated MFP payments (TN)

2018 Production (KY)

Estimated MFP payments (KY)

Corn $0.01 118,505,000 $1,185,050 221,960,000 $2,219,600

Cotton $0.06 367,200,000 $22,032,000 NA NA

Soybean $1.65 80,160,000 $132,264,000 107,460,000 $177,309,000

Wheat $0.14 18,525,000 $2,593,500 19,800,000 $2,772,000

Deadline to apply February 14th. Deadline for submitting production May 1.

2018 Soybean Profitability: Marketing and MFP

• Take two simple examples (assuming production of 50 bu/acre, cash forward contract price of $10.18/bu and a $8.22/bu harvest price): – 1) a producer who priced 50% of his production before June 1

and 50% at harvest– 2) a producer who priced 100% of his production at harvest.

2018 Soybean Profitability: Marketing and MFP• In scenario 1, the producer would receive 50 bu/ace x

$10.18/bu x 50% + 50 bu/acre x $8.22/bu x 50% + 50 bu/acre x $1.65/bu = $254.50 + $205.50 + $82.50 = $542.50/acre (or $10.85/bu).

• In scenario 2, the producer would receive: 50 bu/acre x $8.22/bu x 100% + 50 bu/acre x $1.65/bu = $493.5/acre (or $9.87/bu).

2019 PRICE OUTLOOK AND MARKETINGCorn and soybean

300

350

400

450

500

1-Dec 31-Dec 30-Jan 1-Mar 31-Mar 30-Apr 30-May 29-Jun 29-Jul 28-Aug 27-Sep 27-Oct 26-Nov

Cen

ts/B

ushe

lDecember Corn Futures

2019 2018 2017

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Janu

ary

13

Mar

ch 1

3

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meb

er 1

3

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embe

r 13

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ch 1

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embe

r 14

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embe

r 14

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ary

15

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ch 1

5

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15

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15

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embe

r 15

Nov

embe

r 201

5

Janu

ary

2016

Mar

ch 2

016

May

201

6

July

201

6

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embe

r 201

6

Nov

embe

r 201

6

Janu

ary

2017

Mar

ch 2

017

May

201

7

July

201

7

Sept

embe

r 201

7

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embe

r 201

7

Janu

ary

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Mar

ch 2

018

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201

8

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201

8

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embe

r 201

8

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embe

r 201

8

Janu

ary

2019

Basi

s ($/

bu)

Tennessee Average Monthly Corn Basis, 2013-2018

Projected Prices2018 2019 2020 2021

CBOT $3.76 (Mar19) $4.00 (Dec19) $4.13 (Dec20) $4.17 (Dec21)FAPRI $3.62 $3.83 $3.85 $3.87CBO $3.59 $3.73 $3.96 3.93WASDE $3.25-$3.95

800

900

1000

1100

1200

1-Nov 1-Dec 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov

Cen

ts/B

ushe

lNovember Soybean Futures

2019 2018 2017

(0.80)

(0.60)

(0.40)

(0.20)

0.00

0.20

0.40

0.60

0.80

Janu

ary

13

Mar

ch 1

3

May

13

July

13

Sept

embe

r 13

Nov

embe

r 13

Janu

ary

14

Mar

ch 1

4

May

14

July

14

Sept

embe

r 14

Nov

embe

r 14

Janu

ary

15

Mar

ch 1

5

May

15

July

15

Sept

embe

r 15

Nov

embe

r 201

5

Janu

ary

2016

Mar

ch 2

016

May

201

6

July

201

6

Sept

embe

r 201

6

Nov

embe

r 201

6

Janu

ary

2017

Mar

ch 2

017

May

201

7

July

201

7

Sept

embe

r 201

7

Nov

embe

r 201

7

Janu

ary

18

Mar

ch 2

018

May

201

8

July

201

8

Sept

embe

r 201

8

Nov

embe

r 201

8

Janu

ary

2019

Basi

s ($/

bu)

Tennessee Monthly Average Soybean Basis, 2013-2018

Projected Prices2018 2019 2020 2021

CBOT $9.13 (Mar19) $9.55 (Nov19) $9.75 (Nov20) $9.81 (Nov21)FAPRI $8.73 $8.95 $9.29 $9.39CBO $9.53 $9.67 $9.84 $9.87WASDE $7.85-$9.35

Developing a Crop Marketing Plan1. Evaluate supply and demand outlook2. Evaluate your yield potential3. Estimate pre-plant cost of production (and revisit)4. Determine breakeven prices / sales prices5. Examine crop insurance, marketing alternatives, and

strategies 6. Develop and implement a plan7. Revisit your plan on a regular interval

Projected and Harvest Crop Insurance PriceCorn Soybean

Projected Harvest Change Price Move Projected Harvest Change Price Move

2019** $4.02 - - - $9.59 - - -

2018 $3.96 $3.68 ($0.28) Lower $10.16 $8.60 ($1.56) Lower

2017 $3.96 $3.49 ($0.47) Lower $10.19 $9.75 ($0.44) Lower

2016 $3.86 $3.49 ($0.37) Lower $8.85 $9.75 $0.90 Higher

2015 $4.15 $3.83 ($0.32) Lower $9.73 $8.91 ($0.82) Lower

2014 $4.62 $3.49 ($1.13) Lower $11.36 $9.65 ($1.71) Lower

2013 $5.65 $4.39 ($1.26) Lower $12.87 $12.87 $0.00 Lower

** Price not final

Forward Pricing / Hedging • Price in increments (spread out the risk)• Determine the amount of production you are comfortable

forward pricing at specific times of the year. – Example.

• Pre-plant / emergence = ~25%• Pollination or Pod fill ~ 50%• Mature = ~75%• Post harvest = 100%

• Schedule dates to review & update your plan

Forward Contracting

Positives• Easy, limited marketing expertise

required• Clearly defined cost structure

– No margin calls or option premiums• Locks in a price for a quantity and

quality of the commodity– Decreases in futures prices and

weakening of basis do not affect price

Negatives• Production risk

– Quality – Quantity

• Counter party risk• Cannot take advantage of

increases in futures prices or strengthening basis

5.024.074.183.81 4.12

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Jan Feb March Apr May Jun Jul Harvest

Pric

e ($

/bu)

Corn Tennessee Forward Contract Price and Cash Harvest (August-December) Price, 2014-2018

2014 2015 2016 2017 2018

12.489.9211.41

10.3 10.42

0

2

4

6

8

10

12

14

Jan Feb Mar Apr May Jun Jul Harvest

Pric

e ($

/bu)

Soybean Tennessee Forward Contract Price and Average Harvest (Aug-Dec) Price, 2014-2018

2014 2015 2016 2017 2018

Take Home

• Today will be an important update for USDA S&D estimates

• Expect trade related volatility in prices• Know your cost of production• Price in increments / pick your spots• Manage your price risk!

THANK YOU AND QUESTIONS