Commercial and Industrial Inventory - Grains


Industry Insights



  • Market Dynamics: Demand for agricultural food products is generally driven by demographics and consumer preference, with supply being driven by pricing outlooks and crop yield. COVID-19 may impact consumer preferences to a small extent, but demographic trends and crop yields should be well insulated from the impact of the disease.
  • COVID-19 Impacts: Consistent with all food producers, the agricultural industry is considered essential critical infrastructure. Nonetheless, COVID-19 is having short- to medium-term impacts on various markets for a variety of reasons. Labor shortages continue to be a concern in this sector and have been exacerbated by additional COVID-19 screening for guest-worker visa programs.
  • Specific-Sector Impacts
    • Cherries: There have been some supply chain impacts related to particular sectors such as West Coast cherries, which rely on export markets serviced by airfreight. This segment also has been impacted by a reduction in Asian demand for fruits and nuts for the first and second quarters of 2020.
    • Corn: Corn prices have dropped about 20 percent since the full impact of COVID-19 became apparent in Europe and North America. This decline was primarily due to concerns related to ethanol plant closures, which would remove approximately 220 to 300 million bushels of demand from the U.S. market, as well as weakening 2019 to 2020 U.S. export shipments, which are trending about 5 to 10 percent lower than 2018 to 2019 levels.
    • Wheat: Wheat prices were up in late March, as consumption of grain-related staples such as pasta, flour, bread, and crackers benefited from pandemic-related purchasing, in addition to expectations of a strong export market in 2020. Prices slipped slightly in April and early May as the global economy weakened and the foodservice deterioration demand element filtered into the marketplace.
    • Soybeans: Soybean prices are off on a year-to-date basis primarily due to weakness in the food service industry both in Asia and in the United States, which negatively affected consumption of soybean oil. In addition, soybean export shipments are lower on a year-to-date basis, which is also weighing on the market. Vegetable oil prices declined by approximately 5.2 percent in April 2020.
    • Beans: Canadian bean exports are down on a year-to-date basis primarily due to West Coast port congestion and limited container availability, which is driving pricing down.
    • Sugar: Sugar prices have softened due to stay-at-home and nonessential business orders in North America, Europe, and India roiling both supply and demand. Sugar prices have hit a 13-year low, declining 13.6 percent as of early May 2020 from March levels.
  • Valuation Outlook: From an inventory valuation perspective, while certain inventory positions may be impacted by short-term price fluctuations, on a mark-to-market basis recovery rates should hold up despite the impact of COVID-19.
COVID-19: Industry Brief Meter - Grain

Content Divider



Date January 2020

Projected Values - Grain


Current Trends

  • Soybeans took a yield hit down to 46.9 bushels per acre in October 2019, which has contributed to approximately a $0.50 per pound increase in soybean contract prices since early September 2019.
  • In January 2020, phase one of a U.S./China trade deal was signed; however, tariffs remain in place on many U.S. agricultural exports to China.
  • The United States-Mexico-Canada Agreement has been approved by both the House and the Senate, and is scheduled to be signed by the U.S. President on January 29, 2020. Once finalized, the deal is expected to positively affect grain trade in North America.


approximate net recovery on cost


USMCA passes: In late 2018, U.S. President Donald Trump, Mexican President Enrique Peña Nieto, and Canadian Prime Minister Justin Trudeau signed the United States-Mexico-Canada Agreement (USMCA), replacing the North American Free Trade Agreement (NAFTA), modernizing technology, addressing trade issues, and promoting opportunities for residents of North America. Implementing legislation (H.R. 5430) was approved by the House of Representatives on December 19, 2019, and was ratified by the Senate on January 16, 2020. The agreement updates NAFTA with key amendments that require more cooperation, transparency, and sharing of resources between the three countries. In terms of canola, the agreement removes the tariff on canola-based margarine going to the United States, enabling more value-added canola exports. The Grain Growers of Canada say the historic agreement serves the interests of grain farmers from coast to coast.

According to the National Association of Wheat Growers and U.S. Wheat Associates, Canada designates U.S. wheat as the lowest grade simply because it is foreign. However, with the new deal, American wheat will be graded with the same requirements as Canadian wheat. The new agreement also provides access to Mexican markets; according to the former Alberta barley chair Jason Lenz, the growing demand in the barley industry in Mexico creates a potential for new barley exports. The updated trade agreement is expected to benefit the grain industry for each of the related parties.

Phase I trade deal signed, but Chinese tariffs continue: In July of 2018, China imposed a 25-percent tariff on U.S. products including grains, corn, soybeans, and sorghum in response to American duties on an extensive list of Chinese products. Subsequently, China’s U.S. grain imports decreased significantly as rising international prices curbed buying. However, in October 2019, China pledged to spend between $40 billion and $50 billion on U.S. agricultural products annually, up from $23.8 billion in 2017, as part of a deal to end the trade war that started in early 2018. Since the imposition of the retaliatory tariffs on U.S. imports in 2018, U.S. agricultural shipments to China declined to $15 billion as Chinese imports increased to $127 billion, and Brazil overtook the United States as its largest agricultural supplier.

On January 15, 2020, a phase one U.S./China trade deal was signed by the Trump administration. The agreement stipulated that China will purchase an additional $200 billion of U.S. goods and services through 2021 using (pre-tariff) 2017 sales as the benchmark, a year in which China spent $185 billion in total U.S. goods and services. In exchange, the United States has agreed to reduce tariffs on $112 billion of Chinese products from 15 percent to 7.5 percent, and will hold off on imposing a 25-percent tariff on an additional $160 billion in goods, including on popular electronics like cell phones and computers.

Assuming the Second phase of the deal is executed, a significant increase in U.S. exports is projected. The issue that analysts have noted, however, is that the sales targets are not enforceable and therefore are subject to potential non-compliance. Based on reporting by CNN Business, total exports to China would increase to over $260 billion in 2020 and to approximately $310 billion in 2021 if the deal holds. "We think it is highly challenging for China to import $200 billion more goods and services from the U.S. over the next two years without reducing imports from elsewhere," according to UBS. Having said that, agricultural products comprise a significant percentage of the projected purchases. Under the terms of the agreement, China will buy an additional $12.5 billion of agricultural products in 2020, and $19.5 billion in 2021. When combined with the $24 billion U.S. agricultural export baseline in 2017, the 2020 total approaches the $40 billion annual goal recently noted by the Trump administration as part of the Phase I deal announcement.

Despite the good news of the deal signing, tariffs remain in place on U.S. agricultural exports to China. While the new deal suspended some tariffs on Chinese imports that would have gone into effect had the deal not been signed and halved others, U.S. duties remain in effect on $360 billion of Chinese imports, or about two-thirds of total Chinese imports. Additionally, the trade deal does not include an agreement for a future reduction in Chinese tariffs on U.S. exports. To the extent that ongoing tariffs continue unabated, farmers may continue to suffer the financial consequences of reduced exports to China and will not be as competitive in the world marketplace, and may have to continue to source alternate customers to maintain sales volumes.

Climate change a critical factor: Climate change impacts agricultural production and has negatively affected the grain industry by exacerbating droughts and catastrophic storms. The negative impact of climate change on grain production will reduce quantities available for consumption if an additional grain supply is not available from the world market. The USDA estimates that 90 percent of crop losses are related to the impact of extreme weather. Major crops affected by climate change include corn, wheat, and flowering crops, which are particularly vulnerable to warmer temperatures and drought. The predictability and length of growing seasons as well as temperature fluctuations that deviate significantly from averages will continue to be challenges as the effects of climate change escalate.

Soybean market struggles: The U.S. soybean farming industry suffered significantly from 2018 through 2019. The appreciating U.S. dollar and the Chinese tariffs imposed on U.S. soybeans dramatically impacted industry revenue, causing an over 20-percent drop to U.S farmers. In addition, the 2019 soybeans production yield estimate was revised down to 46.9 bushels per acre in October 2019, which was down one bushel from September and down 3.7 bushels per acre from prior harvest year levels. This has contributed to an approximately $0.50 per pound increase in soybean prices since September 9, 2019. Total U.S. exports to China through November 2019 (all trade goods) showed that China’s imports of U.S. goods dropped to $97.8 billion in 2019 from a level of $111.0 billion in 2018. November 2019 exports were actually higher than the prior year, reaching $10.1 billion versus $8.6 billion in 2018. Part of this was due to a higher level of soybean exports, which were up from $1.1 billion in October to $1.4 billion in November. This increase was driven in part by a shortage of soybeans in Argentina due to drought.

As of January 9, 2020, price per bushel was up 2.1 percentage points over last year, continuing a slow but positive pricing trend that began in the fall of 2019 when yield decreased. However, according to IBISWorld research, through 2024, growth rates will not keep pace with the turnaround experienced in 2016 and 2017. While the U.S. Department of Agriculture expects soybean production to increase over the next five years, prices will continue their fall from historic highs throughout most of the period. Industry revenue is forecasted to increase at an annualized rate of 0.8 percent to $41.7 billion through 2024. On the other hand, the Canadian soybean market has experienced 5.2 percent growth since 2014 and is expected to grow another 1.4 percent over the same period

A decreasing Canadian currency has made domestic products relatively inexpensive to foreign buyers, helping export growth. Overall, the global price of soybeans has declined when compared to 2018 levels. Global supply increases and supplies have been taking a hit because of trade tensions with China, which have led to a decline in prices. However, based on research from IBISWorld, the demand for soybeans has surpassed the decline in prices in Canada with exports to China increasing exponentially since soy is a valuable source of protein for both animal feed and human consumption. Ultimately, the gap created in supply by U.S. farmers has been filled by Canadian and South American soybean farmers, although this seems likely to revert back to the U.S. in 2020, assuming the Trade Deal with China is finalized.