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Not If Friday’s USDA Data Will be Bullish, but by How Much?

The focus is on how much the USDA will tighten U.S. soybean ending stocks, analyst says.

Come January, usually the only market factor with much influence on prices is South America’s weather. 

After all, they are our best competitor for world exports and this is their prime growing season. 

But some USDA assumptions will also become an important factor this January.  

South America’s weather remains nonthreatening in forecast, but recent weather statistics suggest that even though the forecast was nonthreatening in December, actual statistics show below-normal precip in the central/eastern Brazil region starting in the state of Bahia and spreading west to three or four adjoining provinces.  So, even in Brazil – where it seems to rain almost every day this time of year – there is an area of concern.  

Temps in Dec. also suggested a bit warmer than normal in that central/east area as well, which is likely to become crop stress in January and February unless the pattern changes. Argentina also has
had above-normal temps and below-normal precip in most of December as well, so this is also an area of concern. In reality, while SAM weather has never seemed threatening the past five weeks, it actually is threatening yields in about half the production area. January/Feb in SAM is like July/August in the U.S. for weather. So we are coming into the most critical time for the continent’s crop growth.  

USDA’s Jan report is coming Jan. 10 (Friday), when final corn and soy yields as well as demand updates will occur. Recall that the U.S. and China will sign a phase 1 trade accord Jan. 15 as already announced and agreed upon, and USDA will have to update the U.S. supply demand table to reflect $40 billion in purchases from China. 

It will be hard for that report to not be bullish; the question is, how bullish? Pro Ag believes yields for both corn and soybeans need to be reduced in this report (and acreage planted should be as well).  Demand also needs to be hiked due to the Chinese-U.S. trade phase 1 agreement, buts it’s less certain how much will be done in January vs. February. (It is not actually signed until Jan. 15 - five days after the Jan. report).  

To be quite honest, the past 18 months of the trade dispute has provided a time when USDA numbers were least important and accurate as they were always based on assumptions that would never hold – and most traders knew it. A billion bushels of soybean carryout was probably never possible (under assumptions China would buy almost nothing), and perhaps now they won’t be much good assuming China will buy $40 billion in 2020 ag products or $50 billion next year (essentially $40 billion is the value of the entire soybean crop). Government involvement in anything always distorts a market, and government assumptions are usually worse. Someone has to deal with reality, and in agriculture the buck usually stops with farmers themselves. Fortunately, most farmers are very good at it!

Pro Ag believes that the tide has turned, and with the phase 1 agreement, essentially things should turn much better for ag. Essentially, the agreement means if it doesn’t get much better for ag, then some tariffs will come back onto China that will be quite expensive. Whether that means $40 billion in ag purchases, or $35, or $50 – China needs to keep the U.S. happy, or else tariffs are reinstated. But that is hard to put into S/D tables by USDA, and seems like a rather arbitrary job to try to do so.  

Here’s a rhetorical question: If USDA projected that U.S. soybean carryout would go from 400 million bushels to 1,000 million bushels in one year (a 600 mb increase) without Chinese purchases, what does 475 mb carryout change to with a $10B increase in Chinese purchases from its peak imports the past 10 years? The above numbers were the ones USDA used when we essentially lost almost the entire 1.2 billion bushel/year Chinese export market. Using its numbers, one could make the argument that we should have a 600- to 800-mb increase in U.S. soybean demand from current numbers.  
But, how can we do that with only a 475-mb carryout? Obviously, USDA has some new assumptions to make.


Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country. 

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