May 2, 2019

Large Global Harvests of Corn and Soybeans to Weigh on Prices

 |  By: Fran Howard

The forecast has suddenly become a bit brighter for U.S. dairy producers. Some of the world’s largest producers of grains could be headed for bumper crops this year, and that will continue to keep downward price pressure on key dairy feeds. The Bloomberg Agriculture Subindex dropped to its lowest level in more than four decades this week as favorable weather weighed on grain prices. While wet fields throughout much of the U.S. heartland still threaten to delay planting, doomsayer predictions are starting to dry up. 

Harvest is well underway in South America, and two of the world’s largest grain exporters report strong yields,” says Monica Ganley, analyst for the Daily Dairy Report and principal of Quarterra, a food and agriculture consulting firm in Buenos Aires. Conab expects corn production this year in Brazil to reach 94 million metric tons, up 16.5% from last year’s harvest, due primarily to this year’s very large safrinha corn crop, a second crop planted after soybeans are harvested. “If this year’s predictions come to fruition, the safrinha crop will account for 72% of Brazil’s total corn production,” notes Ganley.

“In Argentina, where drought crippled production during the last crop cycle, enormous gains are being seen this year,” Ganley says. “About one-fifth of Argentina’s soybean crop has already been harvested, and early yields are the highest they’ve been in more than a decade.” The Rosario grains exchange forecasts a soybean harvest of 56 million metric tons, up an astonishing 60% from last season, when drought cut production. Argentina’s corn production is also expected to climb to 48 MMT, up 50% from last year, due primarily to improved yields. 

EU-28 member states are also expected to reap a much better harvest than last year, notes Sarina Sharp, analyst with the Daily Dairy Report. According to a recent USDA Foreign Agricultural Service Gain report, grain production in Europe for the 2019-20 crop year is expected to increase 9.6% from last season to 311.6 MMT, assuming normal weather conditions and an expected increase in acres. If production is realized, the EU-28 could return to being a net exporter of grain.

“Expectations for greater global grain output have pushed May 2019 through July 2020 corn futures to life-of-contract lows,” Sharp says. “That will help dairy producers around the globe produce milk at a lower cost, particularly in Latin America and the United States, where cheap corn is most plentiful.”

Sharp also notes that U.S. dairy producers could see improved income from the sale of cull cows. “Beef demand has been strong, and it is expected to grow further to replace pork in China, where the hog industry has been devastated by African swine fever,” she says. “With more cash coming in from cull cow sales and less going out to cover feed expenses, dairy producers could see improved margins even if milk prices stall.”