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Todd's Take
Monday, February 24, 2020 1:01PM CST
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:


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."


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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