Commodities: International Consequences for Local Crops
The major crop season for 2017-18 is entering its final stages, with the corn and soybean harvests underway. The growing season has been challenging but the USDA, and private firms, have basically shown adequate corn and soybean yield estimates. No doubt a relatively cool summer has played a part here, but also important are the improved seed types and technology making farmers more efficient. This should not be discounted. As it stands today, the USDA is signaling that the 2017-18 available corn supply will be the second largest since 2006-07. Not to be outdone, the available soybean supply is projected to be best in a decade. That said, there are some concerns around pending soybean oil supplies. The U.S. Department of Commerce recently ruled that Argentina and Indonesia were unfairly subsidizing their biodiesel production. The consequence was the commerce department instituting sizable import tariffs on biodiesel from the two countries. In June, Argentina accounted for roughly 93 percent on U.S. biodiesel imports and imports accounted for about a third of the total supply. This could boost biodiesel use for soybean oil in the coming months and into 2018 unless the tariffs are reduced or the biodiesel mandate is lowered. Spring wheat supplies remain a problem as well as drought in the Northern Plains has shortened the hard-red spring and durum wheat harvests. To add insult to injury, the Canadian wheat crop is projected at a six-year low. This could be especially supportive of the hard-red spring and durum wheat markets this fall and into 2018. The beef markets fell sharply this summer as better cattle supplies materialized, fueling strong beef production. However, there are concerns that cattle supplies could tighten some at times next year, which may underpin beef prices. Further, it appears that the cattle herd growth is slowing which suggests a longer-term bottom in beef prices may be being made. Pork, chicken and milk production should benefit from low feed prices, at least through the spring.
David Maloni is commodity consultant for American Restaurant Association Inc., a food commodity research, forecasting, consulting, and contract risk management organization founded in 1996 specifically advising the US restaurant and hotel industry and supply chain.