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AgriVisor Market Recap

 
Wednesday, September 16, 2020
Trade was on the positive side today as once again buyers flocked to the soy complex. This drove futures higher and formed a key reversal on the daily November chart to the upside. Soybeans were further aided by another flash sale of 327,000 metric tons to China. The grains eventually worked higher as well.  Grains are being restricted by the global market and how the US needs to remain competitive to maintain demand. 

Even with elevated buying interest in recent weeks, China is still likely to fall short of its Phase 1 obligations. This is from the fact the guidelines of the Phase 1 plan were based on revenue rather than volume. Trade is also starting to show less interest in the entire Phase 1 plan as it simply brings sales back to where they were prior to the trade war. While we may see Chinese demand increase in the future, so is global production, and the United States will still need to remain price competitive to maintain its market share. 

Another unknown on Chinese demand is yesterday’s ruling from the World Trade Organization on tariffs. The WTO ruled that the tariffs the US placed on China in 2018 when the trade war started were unfounded and need to be removed. The concern with this is China may now wish to renegotiate current purchases or possibly cancel them altogether, which seems unlikely given their elevated demand base. The US now has sixty days to appeal the WTO ruling. 

Weather in the Black Sea was a disruption to grain production in that region a year ago and is again this year. While planting of winter crops is starting to get underway in the Black Sea, they are going into drier than cared for soils. This is mostly an issue for wheat production at this time. It is possible that this is why Russia is currently holding its wheat off the global market. 

The La Nina weather event continues to build and become more of a market factor. Forecasters now claim there is a 75% chance of a La Nina being in place through the winter months. Typically this brings drought to Argentina, but favorable growing conditions to Brazil and Australia. The pattern can generate mixed conditions in the United States, with wetter patterns in the north and drier conditions in the south. The real question with this event is how long it will last, and if it will be gone by next year’s growing season. 

Trade is closely monitoring the Brazilian economy. Brazilian officials have recommended removing import tariffs on commodities to lower food costs in the country. Right now this rate is at 8%. While this may lower consumer costs, it will also remove a portion of the country’s revenue. What is most likely is windows of opportunity for tariff-free imports in a quota system, similar to what other countries offer. 

Another uncertainty in Brazil is their export forecast on soybeans. The Brazilian firm Safras is estimating new crop soybean exports at 82.5 million metric tons, which would be unchanged from this year. This seems low given estimates for Brazil to increase soybean production by 10 mmt this season. The answer may be in Brazil’s expanding domestic use of commodities, and how these soybeans may be needed for crush. 

The ethanol manufacturing report for the week ending September 11th was again mixed. Ethanol production for the week was down 1.6% from the previous week at 6.482 million barrels. Yearly ethanol production remains 7.4% under last year according to numbers from Mid-Co Commodities. We did see a 195,000-barrel decrease to ethanol stocks though, putting them at 19.8 million barrels versus last year’s 23.24 million. 

US ethanol values have been on a steady rise in recent weeks. Ethanol for export now has an average value of $1.55 per gallon. This is a 4-cent increase from a week ago and narrows the gap between the US and Brazil. US ethanol is now only 2.7 cents lower than Brazilian ethanol in the global market. Given the lower stocks the US is seeing ethanol values are likely to keep rising. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation. 
 

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