July corn down 12 ¾ at $3.58
July beans down 25 at $8.1725
The DOW is down
USD is stronger
Crude oil down $.74 at $61.20
Corn prices are being pulled aggressively lower this morning by the extreme uncertainty surrounding Chinese trade. Insiders are bracing for an extremely busy and volatile week! Not only do we have wild weather, flooding fields and planting complications, but we also have a ton of government headlines and data scheduled for release. Today, the trade is eager to see just how much corn has been planted? It seems like most sources are looking for between 23% to 27% planted vs. what’s traditionally closer to 40% planted by this date.
Soybean bears continue to take big swings as prices overnight tumble to fresh nearby lows. With a glut of U.S. soy surplus, producers desperately want to see progress regarding Chinese trade negotiations. After seeing the tweets from President Trump this weekend and bantering by Beijing, it now feels like a “trade deal” is more of a coin toss? These are certainly headlines I have on my radar and keeping an eye, but they are yet to impact the trade in any major capacity. The biggest concerns right now are Chinese trade negotiations and African Swine Fever. While official estimates count 1 million culled hogs, slaughter data and rumors suggest 100 times more will be removed from China’s 440 million-strong swine herd in 2019. The USDA forecast in April was for a decline of -134 million head — equivalent to the entire annual output of American pigs — and the worst slump since the department began counting China’s pigs in the mid 1970s.
For the first decline since 1997, agriculture and related industries saw their contribution to GDP drop. Ag, food and related industries contributed $1.053 trillion (5.4%) to U.S. gross domestic product in 2017. This total represent a decline of $7.9 billion or 1% of the 2016 total. (Source: USDA)
Crop insurance policies are one of the most important risk management tools available to farmers and though technically voluntary, I suspect most of the lenders you are dealing with require the coverage before they cut you a check for business operations. In 2018, I’m told insurance was purchased on 77.9 million acres of corn and 78.7 million acres of beans across the U.S., which represented 87% and 88% coverage respectively. For corn, this included 70.6 million acres covered under traditional revenue protection policies, 5.7 million acres covered by yield protection and 1.5 million acres covered under an area-based plan or a plan with the harvest price exclusion. Beans saw the top 10 producing states in terms of the planted area purchase insurance on 61.4 million of the 68.4 million acres planted, representing coverage for 90% of soybean acreage. With most of the 2018 payments on Federal crop insurance products having now been entered into the Risk Management Agency’s (RMA’s) record system, we can take a look at the loss ratios across the country. I should mention, similar to 2016 and 2017, low losses again occurred in 2018. Losses were particularly low in Illinois and, more generally, the eastern Corn Belt. In 2018, across all insurance products, the loss ratio was.69, meaning that payouts were less than total premiums. Keep in mind loss ratios, equal payments on crop insurance policies divided by total premium paid on crop insurance policies, so that a loss ratio of 1.0 means that crop insurance payments are equal to total premium, ratios above 1.0 means payments exceed premium, and below 1.0 means they are less than premiums. Overall, 2018 was a low loss year, continuing a string of low loss years that have occurred since 2013. You’ll notice that loss ratios exceeded 1.0 in the drought year of 2012 when the overall loss ratio was 1.57 and payments also exceeded premium in 2013 when the loss ratio was 1.03. But, since 2013, loss ratios have been below 1.0 in each year: .91 in 2014, .65 in 2015, .42 in 2016, .54 in 2017, and .69 in 2018, which corresponds to relatively high yielding years in both corn and soybeans. You can check out your county loss ratio in the graphic below and always make sure you are using crop insurance as part of your risk management program along with a well thought out and written marketing plan. (Source: fb.org, farmdocdaily)