Unforeseen Events Shape 2020 US Agriculture BY JOHN MILLER
While every year seems to bring unexpected economic, political, or adverse weather events that surprise the marketplace, 2020 seems to have found a level of frequency not seen in a while. As if wasn’t enough, commodity markets began the year mostly focused on the ongoing US-China trade dispute and the prospects for solutions beyond the prior-year Phase One agreement that was negotiated largely with agriculture in mind. Since the beginning of the year, US agriculture has experienced a strong uptick in Chinese purchases of our agricultural products, mostly in the form of soybeans and corn with modest improvements in a considerable number of other products. It is true that China has barely approached half of the original goal for this year, but a recent surge in purchases of US soybeans and corn have been of critical importance to buoying commodity futures prices in recent months. As we moved into mid-January of this year, it was well understood that US famers would attempt to plant more than enough corn and soybean acres to satisfy demand and then some. Commodity traders were already preparing for the prospects of lower prices in anticipation of formal planting surveys that start coming out in March. Little did anyone know that those early reports of something called Covid19 would turn into a Black Swan event that would keep markets on the defensive for the balance of the year. One of the best illustrations of the impact of Covid19 on the economy must be Figure 1 which shows the rapid decline in weekly ethanol production starting in late January of this year (blue line). In just three months, this industry went from producing a record 1.1 million gallons per week to just under 500 million gallons per week, or just less than half of prior Covid19 levels. Since virtually all ethanol is used as an additive to gasoline, this directly reflects the slowdown in economic activity as the American family and work life started to grind to a halt. Figure 2 shows the corn futures market over this same time, and how it did not take long for these prices to react since roughly forty percent of the US corn crop has been going towards ethanol production since 2013. The expectation of a large US corn and soybean crop coupled with unforeseen impacts of Covid19 on the economy suggested at the time that commodity prices could very well decline further to extremely unprofitable levels.
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Ag Mag THEAGMAG.ORG
As the Rio Grande Valley harvested corn and sorghum during June, the commodity markets remained on the defensive as the crops across the US Midwest continued to impress, and the economic effects of Covid19, while abating to some degree, still added uncertainty to the marketplace. After harvesting a modest, but somebut sometimes surprisingly good corn and sorghum crop given the dry spring, Valley farmers were eager to get out there and pick one of the best cotton crops seen in a while. Early expectations ranged anywhere from just under 2 bales per acre to over 3 bales per acre
