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GFMM desk: Excessive spring rains, trade disputes and African swine fever (ASF) have disrupted agricultural markets. In spite of reduced 2019 U.S. corn and soybean production prospects, prices for many commodities are under downward pressure because of the many factors that have weakened demand. This report provides an update of the 2019 FAPRI‐MU base‐ line released in April.
This update was prepared the week of August 19, 2019. Policies in place at that time, including China’s 25% retaliatory tariff on U.S. soybeans and other farm products, are assumed to remain in place. The update uses 2019 acreage, yield and production estimates included in USDA’s August 2019 Crop Production report. The economy is assumed to evolve as forecast by IHS Market in July 2019, with slower economic growth in 2019 and 2020, but no recession.
Given all of the assumptions of the analysis, here are a few highlights of the results:
* ASF has sharply reduced hog inventories in China, which implies less demand in China for soybean meal and corn as livestock feed. The result is an increase in China’s imports of pork, but a reduction in China’s imports of soybeans to make soybean meal. The estimates of ASF impacts are based on information available in mid‐August, recognizing that there remains great uncertainty about the likely market impacts.
* Also weighing on U.S. soybean exports are China’s tariffs. In spite of a 19% year‐over‐year reduction in U.S. soybean production, the $8.43 per bushel U.S. soybean price projected for the 2019/20 marketing year is slightly below the estimated 2018/19 price.
* As with soybeans, projected U.S. corn prices do not increase in 2019/20, even though estimated production is down by half a billion bushels from the previous year. Weak export sales and stagnant ethanol use are contributing factors.
* The baseline assumes a continuation of the current practice of granting small refinery exemptions to renewable fuel standard (RFS) requirements without reallocation. This contributes to lower values for the renewable identification numbers (RINs) used to monitor RFS compliance and slows expansion of the use of 15% ethanol blends (E15), de‐spite the ability to sell E15 year‐round.
* Assuming a return to more normal weather conditions in 2020, projected corn and soybean production rebounds. As a result, projected 2020/21 marketing year average prices for corn fall to $3.39 per bushel and soybean prices to $7.94 per bushel.
* Wheat prices average about $5.00 per bushel over the next five years, given large global supplies and demand‐side competition with corn. Cotton prices fall in 2019/20 in response to a 24% increase in U.S. production.
* U.S. beef production increases in 2019 and 2020, putting downward pressure on cattle prices, before the cycle turns in later years.
* Even though tariffs are likely to limit direct sales of U.S. pork to China, projected U.S. hog prices increase in 2019 and 2020 in response to strengthening export demand. When other exporters supply China’s pork market, it provides opportunities to increase U.S. exports to other markets.
* Broiler prices have declined in 2019 in response to large U.S. meat supplies. The total amount of beef, pork and poultry meat supplied to the domestic market is projected to increase in per‐capita terms through 2021.
* Milk prices have recovered in 2019 as production growth slows. Projected milk prices exceed $18 per hundred weight for the next several years, but remain sensitive to international market developments and changes in consumer preferences for fluid milk and butterfat.
* Consumer food price inflation has been very low in recent years, but increases to 2.2% in 2019. Projected increases in the consumer price index (CPI) for food are similar to those for the overall CPI. Markets will continue to evolve as we get more information about the size of the 2019 crop, the state of trade disputes and the health of the general economy. To view more…
Source: FAPRI‐MU
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