Corn and soybean futures prices are down 9% and 14% since June 1st. The overall ag economy has suffered as a result of trade tariffs. However, it isn’t exclusively the fault of trade tariffs. Unfortunately, ag economy may not have a dramatic rebound if and when the trade disputes are resolved. This post will explore several market analysts’ points of view on the long-term prospects for corn and soybean prices.
Starting with Jerry Gulke of AgWeb.com who wrote a piece titled, “Unintended Consequences”. He notes that the market was recently ‘surprised’ as ending stocks of soybean estimates rose. Gulke is clearly frustrated by the market’s late arrival to this conclusion. Like many others, he states, “timing of tariffs and Chinese retaliation couldn’t have been worse.” His bigger concern isn’t when China will return to the soybean market but rather if they will. Lastly, Gulke remains concerned that soybean ending stocks will continue to trend upward even into the 2019/20 season. Thus, continuing to put downward pressure on soybean prices.
Gulke is equally concerned with Corn. As prices have dipped, a large new carryover is likely on record demand. There are even factors that would trigger the new carryover to intensify, such as a stronger U.S. dollar. Corn supply may also grow as a result of less acreage competition from soybeans.
Gulke poses a question that is really more of a hope or suggestion:
Will the Ag Sector pressure increase on Trump to ease tariffs and strike a side deal at least for Ag that will decouple that sector from intellectual rights and rethink the Chinese proposal to buy $70 billion worth of Ag and Energy that he refused a couple months ago?
Without resolving the China trade dispute by late summer Gulke argues there will be huge incentives for South America to plant many acres of soybeans destined for China.
Bulls At Bay
Kevin Van Trump of Corn and Soybean Digest also has a pessimistic outlook for the soybean market. Van Trump wants to see the bulls win the battle as demand for soybeans remains strong. However, in the face of a favorable weather outlook and unresolved trade negotiations with China, he acknowledges, the bulls will be kept at bay. Thus, he is stating that upswings in soybean prices will be limited. Van Trump offers this final advice:
Staying patient with a much longer-term mindset
On contrast with Gulke is that Van Trump indicates that if the China tariff situation can be resolved, soybean prices will power higher. Gulke is less optimistic as he believes the situation has triggered a upcoming supply problem, even if the China trade dispute is resolved.
Adding It Up
Jeff DeYoung of Iowa Farmer Today had this discouraging headline, “Trade Uncertainty Puts Dent in Bottom Line”. DeYoung’s piece is about many ag commodity prices being depressed by trade uncertainty, including corn and soybean prices. Quoting Dermot Hayes, an ag economist with Iowa State University
The tariff tussle between President Donald Trump and importers of U.S. ag products has put a severe dent in most farmers’ bottom line. Soybean prices are down $1.75 a bushel due to the tariff issue with China. Corn prices are taking a hit of about 50 cents per bushel and hog prices are down $18 to $20 per head.
DeYoung does offer two points to be mildly optimistic about.
- The European Union agreed to import some soybean. But Hayes cautions the EU will not become a large importer of U.S. soybeans with its ban on most genetically modified grains.
- China will feel the pressure to buy U.S. soybeans, albeit with a duty.
On this last point Gulke would scoff as he expects South American soybeans to displace U.S. soybeans.
The experts aren’t in agreement over the likely outcome when trade disputes are resolved. Unfortunately, they all do agree that the trade disputes have pushed corn, soybean, and other ag commodity prices lower. All agree a quick resolution to these disputes is strongly desired. However, the near-term result has negatively impacted farmers.
Image Courtesy AgFax