Last week, early details of a new trade disruption payment program came out from President Donald Trump and the USDA.
Initial reactions from the market showed some concern, pulling back slightly, and Mike Zuzolo of Global Commodity Analytics said he thinks it was due to the amount of acres that may be planted now.
“It really incentivizes producers around the country to plant something, even if you aren’t going to yield very well,” Zuzolo said. “That’s why the market had a negative reaction to it initially.”
He said that with flooding preventing farmers from planting in certain parts of the Midwest, this new program may not help them.
“I feel that way because of the way it was written,” Zuzolo said. “If you take prevented planting, that means you don’t have any 2019 acres, and that means you aren’t a part of the facilitation program.”
As some farmers make their final decisions on planting, wet forecasts and crop insurance will make markets move one way or the other.
“Very similar to 1993, we are going to see flooded areas remain very flooded all the way into mid-summer,” Zuzolo said. “When you add that element into it, you have a situation where, in 1993 we went from 76.5 million corn acres in May to 73.7 million by December. We lost about 3.7% of the May acreage base, and I could see a similar number this year.”
Losing 3.7% of this year’s 92.8 million acre number would place the final number somewhere below 90 million acres of corn, Zuzolo said.
While some farmers will be hurt by not being able to plant, Zuzolo said the markets should react positively if these numbers come true.
“We have an interesting dynamic,” he said. “The wheat market has really turned in a big way, and was the first to turn before the crop progress numbers.”
He attributed the shift in trade policy for the support, as it appears the U.S. has opened trade back up with the European Union and other trading partners.
“I think the Trump Administration really did a wise thing by saying ‘we can only take on China right now, let’s not take on everybody else that we trade with in agriculture,’” Zuzolo said. “The wheat market shows this, and with the wheat supporting the corn, the corn has more upside potential in my opinion.”