Each year, Brian Basting of Advance Trading lists his Top Ten Ag Marketing stories of the year which we are sharing here for your reading enjoyment.
By Brian Basting of Advance Trading
Summary: At this time of year, you’re certain to see all types of “Top 10” lists for 2017. Below is a list of some of the top stories in agricultural markets. The items are in no particular order and in no way encompass all the dynamics experienced over the course of the year, so feel free to add your own topics to the list.
1. Surprisingly high corn yields—Planting of the 2017 U.S. corn crop was far from uniform and crop condition ratings consistently fell below year ago levels in early summer. A dry weather scare temporarily sent the market higher into early July. While below-normal rain was noted in many areas during the summer, temperatures were cool. Most pre-harvest yield checks suggested a good, but not great crop would be seen. Even the most seasoned observer was shocked, however, when actual yields far exceeded expectations. Crop genetics received a fair amount of the credit but no one really knows for sure. Regardless, the USDA in November pegged a record U.S. national average corn yield of 175.4 bpa.
2. China protein demand continues to impress—Unrelenting protein demand from China continued, helping to push U.S. soybean exports to a record. Four years ago, China imported 2.585 billion bushels of soybeans from all sources. For the current 2017/18 market year, however, the USDA is forecasting imports by China to climb to 3.564 bbu—an increase of 38%. It goes without saying that the U.S. faces tough competition from South American production in the world soybean export market. Nevertheless, the booming export market helped support soybean prices in spite of the largest U.S. soybean harvest in history in 2017.
3. Hog prices post strong recovery into summer before sliding—Lean hog futures began the year with an uncertain tone after a bearish USDA Quarterly Hogs and Pigs report in the final days of 2016. A rebound in pork cutout helped fuel a modest recovery into spring before the market retreated. Prolonged and pronounced strength in pork cutout then surfaced in mid-spring, which triggered a rally in July futures to nearly $93 in mid-July. Not only was this more than $52 above the previous fall low, it was the highest price for nearby futures in nearly 32 months. A larger-than-expected spring pig crop eventually short-circuited the rally as record hog slaughter sent futures back to $55 prior to a late year price recovery.
4. Russia strengthens grip as world’s top wheat exporter— Once a major importer of wheat, Russia has embraced the role as the world’s largest wheat exporter. Wheat production in Russia in 2017 surged a record 83.0 MMT, an increase of 14% from the previous year. Combined with an ample carry-in supply, this set the stage for an aggressive export program. The USDA in December forecast Russia wheat exports for the 2017/18 marketing year at 33.5 MMT, up 20% from the previous year and a record. Competition from Russia is projected to be keen moving into 2018.
5. Rapid decline in corn market underscores importance of defending balance sheet—December 2017 corn futures surged $0.43 in just over two weeks in late-June and early-July on U.S. dry weather concerns. With December corn topping $4.15, many predicted a return to $4.45—the level achieved in the summer by both December 2015 and December 2016 futures—would be seen. Instead, weather conditions moderated and the market plummeted below $3.45 by the end of August. This rapid change again confirmed that price prediction is impossible. Furthermore, it underscored the importance of implementing a disciplined risk management program to defend the financial balance sheet.
6. Price volatility remains a constant in live cattle market— Live cattle futures in early 2017 built on the price recovery that began late in 2016. Nearby futures in February climbed back above $127 for the first time since in 10 months. Following a pullback, prices surged to nearly $139 in early spring. Exceptional strength in choice boxed beef values, which increased $42.42 from early April to mid-May helped fuel the rally. Over time, however, larger placements on feed led to a larger supply of beef and boxed beef values tumbled. By late summer, futures plunged back to $104 before posting a solid recovery in the fall back to the early spring high of $127. Managing price volatility was a key to marketing success.
7. Record corn crops in South America see U.S. world export share decline—U.S. corn exports began 2017 on a strong note with shipments from January-March up 59% from last year. That trend did not last, however, as favorable weather in Brazil and Argentina resulted in bumper corn crops this spring and summer, respectively. U.S. exports began to falter in June and tailed off sharply during the summer with shipments from July-September down 34% from 2016. Strong competition from South America is likely to continue into the early stages of 2018. A wild card to watch is the possible impact of the La Niña weather pattern, which historically has been linked to dry conditions for corn in Argentina and southern Brazil.
8. U.S. soybean acreage surges to new high— In 2012, planted acreage of corn and soybeans in the U.S. totaled 97.3 and 77.2 million acres, respectively. Much has changed, however, over the past five years. Stellar export demand for protein–highlighted by unrelenting demand from China (see #2 above)—has supportive soybean prices while record U.S. corn yields have pressured the corn market. These trends have boosted soybean prices at a higher level in relation to corn. In turn, that helped propel soybean planted acreage in the U.S. to a record in 2017 of 90.2 million acres while corn dipped to 90.4 million. Early indications are the trend toward more bean acres may continue in 2018.
9. Dairy herd expansion sends milk prices sharply lower—Expansion in milk cow numbers combined with increased milk production per cow was a combination that translated into significantly weaker milk prices. Milk futures prices at the end of 2016 posted a two-year high of $17.44/cwt, which encouraged expansion of the milk cow herd. For example, the dairy cow herd expanded for nine consecutive months from October of 2016 to June 2017. At the same time, average per cow milk production increased relative to the previous year. That supported record milk production in 2017, but also pressured prices. As the year nears a close, December 2017 milk futures are trading nearly 11% lower than last year.
10. Drought cuts U.S. hard red spring wheat yields— Drier-than-normal weather began to impact the U.S. Northern Plains in the spring and developed into a major drought over the summer. Hard red spring wheat was hit particularly hard, with major yield losses seen across western parts of North Dakota, eastern Montana and South Dakota. This sent MGEX wheat futures prices sharply higher into July, topping out at $8 16 ¼. Prices subsequently collapsed as a bumper crop in Canada helped offset U.S. production losses. The market has continued to exhibit the “short crop, long tail” price pattern with nearby futures approaching $6.00.
Merry Christmas and Happy New Year!
Brian Basting
