Morning Commentary

Dec corn unchanged at $3.7125

Nov beans unchanged at $8.88875

The DOW is down

USD is weaker

Crude oil up $1.13 at $59.24

Good morning,

Corn  traders have very little fresh or new to chew on. The concerns about crude oil and continued strength in the U.S. dollar is doing very little to help the macro commodity landscape. Weather here at home remains mostly cooperative and there’s still no sign of any type of meaningful cold-snap in the into mid-October. Keep in mind, President Trump is said to be meeting with other Washington leaders today about U.S. biofuel policy so there could be some changing dynamics in the days ahead. The trend for December corn is neutral.  Stable trade outside 360.5-379.75 is needed to provide fresh trending targets. 

Soybean  bulls continue to hold out hope that U.S. and Chinese negotiators can hammer out some type of deal which brings about larger purchases of U.S. supply. The simple thought might be enough to keep the bears at bay until they learn more about the upcoming negotiations. The trend for November beans is neutral-positive.  Stable action over 879.25 should prompt a run to 911-912.  Consistent trade below 871.5 signals renewed weakness. 

Reuters released an article yesterday showing the number of U.S. farms fell by -12,800 to 2.029 million in 2018, the smallest ever. The declining number of U.S. farmers could hurt the world’s top grain merchants such as ADM and Bunge, who will have fewer suppliers. Additionally, farmers will have less need to rent space in the merchants’ grain silos as big farmers have plenty of their own storage. Interesting to think about as we move forward. (Source: Reuters) 

The United States is expected to account for more than half of the global natural gas supply growth through 2035, McKinsey & Company said in a new report. The U.S., thanks to booming shale gas production, is expected to contribute 380 billion cubic meters (bcm) to global supply growth by 2035. The total global supply growth is seen at 635 bcm, according to McKinsey. The pace of growth in the gas market is set to slow, but natural gas will remain the fastest-growing fossil fuel and the only fossil fuel expected to grow beyond 2035, McKinsey said in its ‘Global gas and LNG outlook to 2035’ report. Over the past twelve months, the global gas market expanded by +5.3%, while the liquefied natural gas (LNG) market increased by +8.6% in 2018, the report says. LNG demand is expected to grow at +3.6% every year until 2035. In order to meet additional demand after 2027-2028, the industry will need to invest more than US$400 billion across the LNG value chain, McKinsey noted. (Source: Oil Price)  

U.S. organic food sales surpassed $45 billion in 2017, according to the Organic Trade Association, a 6% increase over the prior year and more than double the sales a decade ago. Also, organic acreage in the U.S. increased by 20% between 2011 and 2018, according to Mercaris, a company which provides up-to-date, accurate information on market conditions for organic and non-GMO commodities. Current organic acres total over 5 million but still only make up less than 1% of the country’s farmland.

According to the 2017 Census of Agriculture, there were 18,166 US farms that sold organic farm products, an increase of 27% or 3,840 farms from the 2012 Census. It’s worth mentioning, seven states accounted for 61% of this growth. Increases mostly came from the Northeast and Midwest with New York leading the way at 466 new farms. Somewhat surprisingly, Wisconsin, Ohio, and Michigan led growth in states more known for traditional production methods.

With consumer demand continuing to grow for organically produced food, more farmers and acres are going to have to come online to meet this demand. With current demand outpacing domestic supply, the U.S. has turned to organic imports totaling more than $2 billion last year, and likely significantly more as the USDA tracks only 40 imported foods.

Producers face a somewhat significant decision and headwinds when shifting acres to organic, most notably knowing who’s going to be there to purchase their crops. Food companies are starting to get ahead of this as they are reaching out to producers and setting up contracts. For instance, Annies, a producer of organic pasta and snacks now part of Minneapolis-based General Mills, has committed to buying more and marked the occasion with a limited-edition box of bunny-shaped graham crackers that featured Montana farmer Casey Bailey’s name on the box. I definitely see this trend of transparency continuing. Costco is also committed to building relationships with farmers by purchasing their crops from before they embark on the organic transition. Keep in mind, General Mills executives are projecting $1.5 billion in organic sales by 2020 and are recognizing it can’t close the supply gap without farmers as partners. I suspect it would be worth the time and effort to reach out to companies in the space if you have acres you are considering turning over to organic production.

Transitioning to organic requires a well thought out plan, not to mention accepting the fact you most likely can expect a decrease in revenues during the transition. But it is with that in mind that companies like Kashi, which sells cereal and granola bars under a transitional label, have created a “certified transitional” initiative in recent years—to give farmers a limited premium to help get through the start-up phase, something I also suspect will become more prevalent as companies seek more domestic production of organic crops. Producers in the space will tell you it’s demanding and different work from traditional production but it’s that fact that makes it a high barrier to entry for some and allow others to wildly succeed in the space. (Source: Farmdocdaily, Nationalgeographic)


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