Michigan Farm News

Market Outlook: Real tariff farm

2018-09-06 Dr. Jim Hilker

Is the story about the large corn and soybean crops coming this year the fact that the five corn and soybean crops ever have been the past five years, and/or the tariffs on grains?

And then, there is the large world corn and soybeans crops this year, but short wheat crop. Of course, they are all significant factors, but the tariffs are what is making the market risky.

The harm from the tariffs is real, whether the trade war is justified or not. And there is a possibility of longer-run effects as well, such as an increase in the investment in agricultural infrastructure in other parts of the world.


On Aug. 10 the USDA/NASS released the first-of-the-year survey- based forecast for 2018 U.S. corn production at 14,568 million bushels based on Aug. 1 conditions. This would be the third-largest crop on record, just barely smaller than last year, 18 million bushels, 0.1 percent. The report indicated a record yield of 178.4 bu/ac, 1.8 bu/ac, 1 percent higher than last year’s record. 

Illinois was projected to have an average corn yield of 207 bu/ac, with Iowa pegged at 202 bu/ac. The planted and harvested acres were based on the June Acreage Report, which showed planted corn acres down 1.2 percent and harvested acres down 1.1 percent.

The forecast is based on a large sample of farmer-reported yield projections collected from all states, and field-measurement objective yields in the largest corn producing states. The report assumes normal weather from Aug. 1 through harvest.

To this point, moisture has been a bit less than normal, which may bring the final yield down a bit, but we are still looking at a huge corn crop this fall.

Michigan’s 2018 corn yield was forecast at 158 bu/ac, down one bushel from last year, and three less than the record 162 bu/ac in 2015.

Michigan is expected to harvest 1.85 million acres, 50,000 acres less than last year, and the fewest since the high of 2.38 million in 2012. Production is forecast at 292.3 million bushels, down 8 million from last year, the lowest since 2007, and 66.5 million below the record 358.8 million set in 2015.

The USDA/WASDE also released updated Supply and Demand Estimates on Aug. 10. They can be seen in Table 1. 

At this point, 2018-19 total use is expected to be up from last year. Feed use is projected to be up 75 million bushels, based on more livestock units, and ethanol use is expected to be up 25 million bushels, with other uses being up 20 million bushels. 

Exports are expected to be down 50 million bushels, mostly based on larger world production. At this point the effects of tariffs are not clear, but remember Mexico is our largest buyer of corn. 

So with lower total supply and more total use, ending stocks are projected to be down 344 million bushels, which lowers the stocks-to-use ratio from 13.6 percent to 11.2 percent. This leads to a projected $3.60 annual average 2018-19 price versus the $3.40 price for 2017-18. In Michigan the basis is fairly strong. If you have a lot of 2017 crop remaining, perhaps consider pricing on market rallies.


The August crop production numbers showed U.S. wheat production down less than 1 percent, 4 million bushels, from the July report, but up 7 percent from 2017. 

Food use, feed use, and exports are expected to be up in 2018-19, with exports being the big increase, up 224 million bushels. The increase in exports is due to world wheat production being down about a billion bushels, mostly due to smaller crops in the EU and Russia.

Michigan 2018 wheat production was forecast at 39 million bushels, up from 33.575 million bushels in 2017. Michigan’s 2018 yield is forecast at 78 bushels per acre, down 1 bushel from last year. But Michigan harvested 500,000 acres in 2017 versus 425,000 in 2017.

The wheat basis in Michigan is fairly strong, which is saying the market wants wheat. And while the market is willing to pay a bit for storage, it won’t cover the cost of most.

Consider pricing some/much of remaining 2018 wheat on rallies, especially if we rally back to the high. And consider pricing some 2019 wheat on rallies past the previous highs.


The August crop production report forecasted the third record U.S. soybean crop in a row, 4,586 million bushels. The yield is projected to be 51.6 bu/ac, up 2.6 bu/ac from last year, and second only to the record 52 bu/ac in 2016.        

Harvested acres were projected at 88.9 million, down 0.6 million and the second- highest on record. This number came from the June Acreage Report. 

Michigan is projected to have a yield of 46 bu/ac, up 3.5 bushels from 2017, but below Michigan’s record yield of 50.5 bu/ac set in 2016. Michigan is expected to harvest a record 2.29 million acres, up 20,000 acres from this past year. This would put Michigan’s projected production at 105.34 million bushels, which would beat out the 104 million bushel record set in 2016.

The above numbers help put 2018-19 U.S. total projected supply at a record of 5,040 million bushels, up 325 million bushels from 2017-18. The updated USDA supply-and-demand report indicates that total use will be down a bit from last year’s record, but will be a moving target depending on how the tariff situation plays out.

Crush is projected to be up 20 million bushels, but exports are projected to be down 50 million bushels, which leaves total use down 50 million bushels. This leaves ending stocks at a massive 785 million bushels, easily surpassing the 2006-07 record of 574.

Ending stocks-to-use is projected to be 18.4 percent of use, up from last year’s 10 percent.

The USDA projects an average annual 2018-19 price of $8.90/bu, down from $9.35 last year. Seems high to me without the tariffs coming off fairly soon.

Remember, tariffs do not mean we won’t export soybeans to China, our largest market normally taking over 60 percent of U.S. exports. It means Brazilian soybean prices will be 24 percent more than U.S. soybeans. Giving a market recommendation with the present situation is pretty much impossible.

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