I am always amazed by how fast the sentiment can change in the global agriculture market. Just a few weeks ago, agricultural analysts across the world were concerned that the excessive wet weather conditions in the U.S. would lead fewer plantings and poor yields. This would have subsequently led to tight global maize supplies.
But when the U.S. Department of Agriculture released its acreage report last week, there was soon a realization that the market misread the situation on the ground. The U.S. government indicated that farmers planted 37.1 million hectares in 2019/20 season, up by 3% year-on-year. It appears that farmers switched a few soybean hectares to maize due to attractive prices in June 2019. As a result, soybean plantings are down by 10% year-on-year to 32.4 million hectares in 2019/20 season.
Now, since this data came out, the U.S. maize prices have retracted from levels seen over the past few days when there were still concerns of slow plantings. Yesterday, July 2, U.S. maize spot price was about US$192 per tonne. This, by the way, is not ridiculously low, and hence, doesn’t justify the drama I saw in the wires over the past two days. This price level is about 16% higher than July 2, 2018.
For those of us, observing agricultural markets from South Africa, the developments in the U.S. market are important and have strong influences on our market, which is generally linked to the global agricultural markets. In line with developments in the U.S., South African yellow maize prices also pulled back from levels seen over the past few days, when there was “sugar rush” from the U.S. maize market.
Overall, my sense is that yields and the actual area that will be harvested at the end of the season are key things to watch. Planting is one thing, but what is key are yields. On Sunday, June 30, only 56% of the U.S. maize was rated as being in good or excellent growing conditions, compared with 76% in the corresponding period in 2018. This alone tells us that it’s not all rosy in the U.S. corn belt, just as it’s not all bad.
For me to be convinced of a possible big U.S. maize harvest, as the market seems to anticipate, I will have to see a sustained improvement in the maize growing conditions. This data point gives us hints about yields expectations, which will be a key determinant of a harvest size. For now, we will continue to watch the developments.
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