Corn demand here in the U.S. continues to remain robust. The USDA yesterday announced another corn sale to an “unknown” destination. Total corn inspections seem to be running well ahead of what the USDA currently has forecast. But the bears argue the strength of the U.S. dollar and probability of South America seeing a massive rebound in 2017 corn production makes it difficult to wildly increase export estimates. Ethanol demand certainly remains strong and warrants upward consideration. As usual, I suspect feed and residual demand will be the “wild-card”.
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There’s some concern brewing around the fact newly elected President Trump seems to be assembling a hard-lining team that could soon rock the boat with China and Mexico. The latest move inside Washington was Trump naming Robert Lighthizer, an official in the Reagan administration and harsh critic of China’s trade practices, to be his chief trade negotiator, responsible for better deals aimed at reducing U.S. trade deficits. For years Lighthizer has argued that China has failed to live up to commitments made in 2001 when it joined the World Trade Organization and that tougher tactics are needed to change the system, even if it means deviating from World Trade Organization rules. Keep in mind Lighthizer is one of the main players credited with stemming the tide of imports from Japan in the 1980s with threats of quotas and punitive tariffs. “Bob Lighthizer is very smart, very strategic and totally fearless,” said a Washington attorney who has worked with him for three decades but asked not to be named. “You can expect him to use every tool available to create leverage to get China and anyone else to stop the cheating. He is no fan of the WTO.” There’s early talk that Ligthizer will be instrumental in immediately renegotiating the NAFTA deal, meaning Mexico could also be in the hot-seat. Bottom-line, Trump is definitely going to try and negotiate better deals for the U.S. and the team he is assembling seem to be extremely serious about the task at hand. We have no way of knowing how foreign leaders will respond, but I have to imagine the initial knee-jerk could be to kick, scream and try to buck the proposals. Unfortunately the U.S. may have to take a couple steps backwards in the process before ultimately moving forward. This potential backpedaling has given the bears a slight nearby edge when talking U.S. agriculture. I think longer-term it’s bullish and will be healthy for the U.S. farmer, it’s just the initial taste might make it tough to swallow. We need to continue closely monitoring negations and relations with our biggest ag buyers i.e. China, Mexico, Japan, etc.. All the people Trump is assembling are clearly agents of “change” and seem to be people who get things done, so I fell like we have to expect some shakeups. (Read more at Reuters)
As a producer, breakevens have clearly moved lower. I’m hearing more talk of cash-rents starting to fall and yields moving higher, a combination that makes $3.90 in the DEC17 contract actually profitable for some producers. I suspect for most the average cost per acre in 2017 will be somewhere in the $700-$800 range. If the USDA’s 170 trend-line is proven to be accurate most folks we need to see yields very similar to that of the past few years, meaning perhaps our breakevens aren’t as high as many of us are factoring into the equation??? In other words if you are spending $750 per acre to grow corn and you are using a 180 bushel per acre average, your breakeven is going to be just north of $4.15 per bushel, but if you use a 210 per bushel average your breakeven is just above $3.55 per bushel and changes the game dramatically and makes current DEC17 new-crop prices attractive. Make certain you are taking some of the technological gains into consideration. I’m certainly not saying to price it all, but for some low-cost producers prices up here near $3.90 makes some real sense. Likewise for soybeans, I believe break-evens have come down enough that new-crop prices are profitable for most. Per acre soybean expense seems to be in that $490 to $590 range. Again, if we assume cooperative weather, profitable prices are on our doorstep. Make certain you are executing your plan. I will be looking to make some additional new-crop sales on another leg higher.
I think Jon Bon Jovi and Richie Sambora said it best back in 1986 on their hit single “Wanted Dead or Alive”. If you remember the famous lyrics, “Its all the same. Only the names will change…” could easily be applied to todays corn market. The headlines change but prices seem to remain the same. Below is a graphic we ran back at the beginning of the month and very little has changed. Also if you look at the “fall average price” for corn we remain just under $3.50 per bushel. Bottom-line, we’ve been stuck in a trading range since mid-summer and it doesn’t appear as if we will be breaking out any time soon.
Thanks to South American weather problems, U.S. corn exports are soaring. According to the latest weekly export sales (data for week ending Sept. 29), corn exports are up 70% above the 5 year average. Weekly net corn sales for 2016/17 were 2,060,847 metric tons. U.S. exporters continue to gobble up market share away from Brazil with South Korea and Japan being the main purchasers.