While China could be on course to buy a near record amount of U.S. ag goods, it wasn’t that long ago when China’s total ag buys from there U.S. topped 100 million tonnes.
“We have to remember the trajectory of Chinese soybean imports prior to two major events that happen simultaneously,” says Brian Splitt of AgMarket.Net. “That was the beginning of the trade war, and the onset of the African swine fever.”
Splitt says those two events meant China bought around 85 million tonnes of U.S. ag goods, a significant drop from where they were the years prior. Now China is rebuilding its economy and rejuvenating its domestic hog herd, which is creating a positive demand story for the U.S.
“We do expect demand to continue to improve year over year,” says Splitt. “I don’t think it’s just China, we’re looking at other things going on. Mexico has been another big demand base for both corn and soy meal. Their demand numbers are going up year over year. So, we do think we are seeing an increase in global demand across all products.”
The positive demand story is helping bring life to commodity markets, a market signal that could lend to more U.S. acres and overall production in 2021.
“The futures prices are telling us the American farmer is awesome, and they’re going to go plant fence row to fence row next year,” says Tommy Grisafi of Advance Trading. “If Mother Nature participates, we’re going to have record acres and possibly a record crop next year.”
Grisafi says a recent trip to North Dakota revealed a dramatic change from years prior. Drier conditions this fall meant farmers not only got the crop harvested in a timely manner, they were also able to get essential field work done in preparation for next year.
“For all the people in the last two years who’ve had prevent plant problems — it dried up and field work is getting done, fertilizer is getting done and the market is are going up,” adds Grisafi. “With the government money, there’s a lot of capital right now in the ag economy. And it’s going to go towards producing bushels.”
Splitt says considering the outlook for 2021, farmers need to take a serious look at today’s prices.
“We’ve been conditioned over the last five to six years that $10 plus soybeans and $4 plus corn at this time of year are prices we should at least be taking advantage of protecting on a new crop basis,” says Splitt.
Splitt says the current market is inverted, meaning the old crop is trading at levels that are a premium to the new crop.
“That is a mental thing that producers need to get over,” says Splitt. “Probably the best example is in 2012: We had $8 corn in the front, and 2013 corn was at $6. No one wanted to market $6 corn because the nearby contracts were at $8, but that was your opportunity to sell.”
Splitt says that situation was an example of how quickly the premium can disappear and today’s prices may not be there in the months to come.
“So, you have to get over the fact that the market is inverted,” he says. “You got to get over the idea I don’t want to sell next year because it’s less than this year’s price. They’re two different crop years trading on two different sets of fundamentals.”
