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Todd's Take                   02/21 09:25

   Confusion Follows USDA Into 2020

   Fresh off a contentious performance in 2019, USDA starts 2020 with 
conflicting messages.


By Todd Hultman
DTN Lead Analyst

   Coming off 2019 -- when USDA made optimistic planting estimates when corn 
wasn't planted, counted unharvested corn in fields as part of stored grain, and 
insisted production reached 13.69 billion bushels (bb) in spite of cash prices 
to the contrary -- this week's Ag Outlook Forum added even more confusion to 
the mix.

   It all began Thursday morning when USDA Chief Economist Robert Johansson 
said in his presentation he expects U.S. ag exports to total $139.5 billion in 
2020, up just $4 billion from 2019. He also expects net cash farm income to 
fall, from $120.4 billion in 2019 to $109.6 billion in 2020. Neither of those 
estimates match the initial enthusiasm of the phase-one trade agreement with 
China.

   DTN Ag Policy Editor Chris Clayton reported on Ag Secretary Sonny Perdue's 
response to the low expectations Thursday. You can read that here:

   
https://www.dtnpf.com/agriculture/web/ag/news/article/2020/02/20/usda-projects-s
tronger-exports-2020.

   In short, the secretary tried to say USDA's estimates did not include the 
impact of the phase-one agreement, but in fact, those statements don't line up 
with what the chief economist said in his posting on Feb. 6 or in Thursday's 
presentation.

   On Feb. 6, the Office of the Chief Economist posted:

   "Publicly available information and data pertaining to the (phase-one) 
Agreement will be reflected in USDA's World Agricultural Supply and Demand 
Estimates (WASDE) report beginning in February 2020 and will also be reflected 
in subsequent and related reports such as the Outlook for U.S. Agricultural 
Trade."

   
https://www.usda.gov/oce/commodity/reports/USDATradeForecastsAndUSChinaAgreement
.pdf

   Slide number six of Johansson's presentation on Thursday showed China's U.S. 
ag purchases estimated at $19.5 billion in 2020, a number that is well below 
the $36.5 billion target in the phase-one agreement.

   In spite of the conflicting explanations, I think there is enough 
information here to untangle the knots and have a sense of what is happening 
moving forward.

   On Friday morning, USDA's Grains and Oilseeds Outlook estimated U.S. ending 
corn stocks at a whopping 2.637 bb in 2020-21, based on the 94.0 million acre 
planting estimate. The export estimate of 2.100 bb is actually higher than I 
expected and almost certainly includes phase-one purchases.

   USDA's U.S. soybean ending stock estimate of 320 million bushels for 2020-21 
is more bullish for prices than USDA's farm price estimate of $8.80 per bushel. 
The 2.050 bb export estimate is also bullish and can only be achieved with help 
from this year's phase-one agreement.

   If you have followed this column or heard me talk this winter, you know I 
never expected China to reach the $36.5 billion purchase target in the 
phase-one agreement, as it was highly unlikely from the start and was weakened 
by a commercial consideration clause that gave China wide latitude in the 
purchases it actually makes.  

   However, I still consider phase one to be modestly bullish for grain prices 
in general and especially so for soybeans. I'll say again that even $20 billion 
or $25 billion of ag purchases from China would be significant improvement over 
the past two years.

   Obviously, USDA is in the uncomfortable position of not wanting to admit the 
$36.5 billion target will probably not be reached. This time around I tip my 
hat to Chief Economist Johansson for providing a reasonable starting point for 
corn and soybean export estimates in 2020, given the factors we know.

   I'm not going to blame politicians for trying to look good -- it's what they 
do. But it's interesting that the coronavirus may end up providing the excuse 
they need to avoid talking about the shortcomings of the commercial 
consideration clause in the phase-one text.

   I have serious concerns about whether USDA's planting totals can be reached 
in 2020 and I have disagreements with USDA's price estimates for corn and 
soybeans, but we have a whole season ahead to learn more about that. 

   As typically happens at this event, Friday's new USDA estimates aren't 
likely to have much price impact and there will be many changes ahead. They 
have, however, started the conversation from a reasonable place. 

   Todd Hultman can be reached at todd.hultman@dtn.com 

   Follow him on Twitter @ToddHultman 

    


(BE/CZ )

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