During 2016, floods in Argentina resulted in supply estimates getting slashed due to the rains hitting during the start of the soybean harvest — which led to a soybean rally in May and June. And Brazil had drought problems last year that impacted its so-called safrinha corn crop and led to shortages and a corn rally in the early part of the summer.
Nevertheless, global grain and soybean stockpiles remain high, particularly in China, according to the USDA. China holds around half of the world’s stock of corn and relies mostly on South America for new supplies; similarly, the communist nation holds about 40 percent of the global stocks of wheat and approximately 20 percent of the soybeans.
Moreover, China is contributing to the worldwide glut of cotton given it holds an estimated 60 percent of the supplies. China also has large stockpiles of the world’s sugar.
“Whether China opens the stock floodgates or not will be a major price driver in cotton and sugar — and potentially also in corn, soybean or vegetable oil — markets in 2017,” Rabobank said in its recent agriculture outlook.
The Rabobank report said that this is unlikely to change in 2017, as interest rates are expected to rise only very slowly, keeping investors looking for higher returns.
“With a large increase to corn ending stocks in 2016, which hit the highest level since the 1980s, there is a need to lower production in 2017 in order to improve grain prices to more profitable levels for producers,” said Rabobank.
Elsewhere, South Korea is grappling with both a deadly bird flu outbreak and a political crisis. Other strains of the highly contagious virus have been found elsewhere in Asia, including China and Japan. All told, the outbreaks and growing number of culled birds could reduce demand for poultry feed ingredients such as corn and soymeal.
The bird flu problems are also a worry in Western Europe, including France — the EU’s largest poultry producer. The Netherlands and Germany also have reported cases of the bird flu.
Corn could stay higher in the first quarter but then might start turning lower. It is expected to much more bullish on the prospects for wheat futures.
“The wheat price has the best chance for appreciation out of the major [ag] commodities given that they hit multi-year lows recently,” Reilly said. The analyst adds that recent dryness in the Great Plains region could trigger impacts, including a chance the USDA may report winter wheat seeding down slightly compared with a year ago.
Then again, some point out the key ag commodities such as corn, soybean and wheat as well as dairy and meat products remain vulnerable to the strong dollar because it makes the American ag products less competitive in the global marketplace. In wheat, for example, Ukraine has made major inroads as an exporter to India.
As for corn, it could be influenced by how crude oil performs in 2017 — and the uncertainty surrounding the ethanol mandate in a Trump administration.
Around 40 percent of the country’s corn supply was used for biofuels in late 2016, according to the USDA. The portion of soybeans going to biofuels isn’t as large but still represents just over 20 percent of the supply.
One thing some industry analysts don’t appear worried about now is President-elect Trump causing trade war that would hurt American ag exports to China.
The export situation with China from a corn perspective “doesn’t really get much worse because US is not really exporting much corn to China.” On the other hand, if trade relations get better with China he believes there could be a “significant upside potential for corn.”