This has been a challenging year for agricultural commodities, specifically the corn and wheat markets. A fresh slew of tariffs and extreme weather patterns have placed additional stress on both the production and export sectors. If nothing else, the first half of 2019 has given market participants a crash course in agricultural volatility.
So, what’s up next for ag commodities? Will the U.S.-China trade war wind down by year’s end? Are Midwestern weather patterns going to cooperate for the growing and harvest seasons? Let’s dig into these issues and take a look at the corn and wheat market outlook for the latter stages of 2019.
Tariffs and Trade Wars
Without a doubt, history will look back upon 2018-19 as being the “year of the tariff.” No matter which side of the tariff argument you are on ― for or against ― it’s impossible to deny their impact. Here are a few of the more notable examples of ag market fallout resulting from the U.S.-China exchange of tariffs:
- U.S. exports to China fell in 7% in 2018, with Chinese investment in the U.S. decreasing 60% year-over-year.
- China is the largest consumer market in the world and a key destination for U.S. agricultural goods. The June 1, 2019, escalation of retaliatory Chinese tariffs to 25% is estimated to cost American food producers upwards of US$1.3 billion annually.
- Short-term ag market volatility following sudden tariff news announcements has become commonplace. For instance, May corn plunged 13 cents per bushel immediately after U.S. President Donald Trump pledged 25% tariffs on $200 billion of Chinese imports.
- U.S. wheat supplies are estimated by the USDA to grow upwards of 5 million bushels for 2019 as exports are predicted to drop by 35 million bushels year-over-year. This change is being attributed to “increased competition,” a product of tariff expansion.
Simply put, as the global trade war goes, so will ag commodities. When developing any sort of corn and wheat market outlook for late 2019, the tariff standoff between the U.S. and China will play a key role in valuations.
No corn and wheat market outlook is complete without first examining the inclement weather in the U.S. Midwest in spring 2019. Featuring precipitation levels not seen for decades, extensive flooding plagued key production areas in Nebraska, Iowa, Illinois, and Minnesota.
By May 2019, Midwestern flooding had reached historic proportions. The upper Mississippi and Red River basins received snow and rain 200% above normal, attributable to a strong El Niño system forming in late 2018. The results were nothing short of catastrophic, stressing a region already hard-hit by tariff escalation. Impacts included:
- Crop losses: The rising flood plane took its toll on corn and wheat supplies already in the silo. Flood waters destroyed a vast number of storage facilities, taking large quantities of supply out of commission. For Nebraska alone, industry estimates chalked up $440 million in losses caused by the disaster.
- Delayed planting: Aside from destroyed crop stores, planting of corn and wheat was delayed at unprecedented levels. In its 20 May Crop Progress Report, the USDA projected U.S. corn plantings to stand at 49%, well beneath the 85% five-year average. Wheat was not as hard hit by the flooding, with the USDA projecting the 2018/19 winter wheat crop as being 66% good/excellent, better than the five-year average of 64%.
Corn and Wheat Market Outlook For Q3/Q4 2019
Destroyed crop stores and delayed plantings promoted scarcity as being the primary underpinning for most analysts’ corn and wheat market outlook for Q3/Q4 2019. During the final trading week of May 2019, corn futures posted fresh 14 month highs, while wheat extended yearly gains established in February. If this year’s production lag negatively impacts supply projections for 2019/20 and 2020/21, then late-2019 price action for corn and wheat may be even more bullish.
By far, the two key issues facing the U.S. corn and wheat markets for the second half of 2019 are tariffs and flooding. If you’re going to trade corn or wheat, then remaining cognizant of these situations will be of paramount importance. A great way to accomplish keeping up to date is through referencing the DanielsAg mobile app. Featuring a daily overview of market conditions and expert trade recommendations, the DanielsAg app has everything you need to stay on the lead lap of the global agricultural marketplace.