AgriVisor Market Recap

Monday, November 09, 2020
Trade was on both sides of unchanged today with soybeans showing strength and grains under pressure. Much of what was seen was an ongoing reaction to South American weather and positioning for tomorrow’s monthly WASDE numbers. This favored soybean futures, especially with drought to continue in Southern Brazil and Argentina. Most of the interest today was on the equity market though as news of a promising Coronavirus vaccine gave us a sharp rally in those contracts. What appears to be an end to the US Presidential Election was also favorable for investor attitude. Advances were held in check by a hesitation to establish news longs ahead of tomorrow’s balance sheets update. 

Baseline data for commodities has been released. These are the initial outlooks for balance sheets for the next five years. Corn carryout is expected to range from 2.16 billion bu this year to 2.56 billion bu in the 2024/25 marketing year. Soybean ending stocks are forecast to remain tight and range from 255 mbu to 300 million bu over this span. Wheat ending stocks are expected to gradually tighten from 883 million bu this year to 749 million bu. Average cash vales are predicted at $3.60 on corn, $9.80 on soybeans, and $5.00 on wheat over this window. 

While most of the attention in South American production has been on Brazilian soybeans, we are starting to see more on the Argentine corn crop. The USDA is currently projecting a 50 million metric ton corn crop for the country. Recent rain has been less than ideal though and some Argentine officials have backed off on their estimates. A few of these are down to 44.5 million metric tons which would be enough to cause a shift in global balance sheets. 

We are starting to see more buyers and consumers in the global market shift away from corn as a feed grain. Many have shifted to wheat, which even though it is more expensive, it is more available in the global market. We have also seen buyers shift to buying sorghum as a feed grain. The most notable of these is China. If this trend continues it could negate some of the support from the possible production losses in South America. 

One of the most heavily watched numbers in tomorrow’s WASDE report will be domestic soybean balance sheets. If we use the Census demand figures and the yield reductions that some are predicting, we could easily see ending stocks cut considerably from their current 290 million bu. A few models indicate this could drop as low at 150 million bu which would be a minimal pipeline supply. As a result, any number close to this would cause rationing to build. 

We are also seeing questions arise over Chinese soybean demand. While China remains a steady buyer of US soybeans their pace has definitely slowed in recent weeks. In fact, last week’s share of the weekly sales total to China was the lowest amount in the past 11 weeks. Sources in China claim the country has immediate needs covered and is now looking at buying for reserves. While the amount of inventory China can buy for this is substantial, the question is if buyers feel comfortable doing it at today’s elevated values. 

Even with this decline, Chinese soybean imports in October were a large 8.7 million metric tons. This was a 41% increase from October 2019 when imports totaled 6.18 mmt. The majority of these imports came from Brazil though and were previously booked. Sources in China now claim imports will slow until next spring when the next South American crop becomes available. 

While mostly overlooked, the export inspections report for the week ending November 5th was released today. For the week the USDA inspected 21.17 million bu of corn, 91.7 million bu of soybeans, and 11.2 million bu of wheat for export. This data heavily favored soybeans as not only was that volume higher, but it was the only one to achieve its needed weekly amount to reach the yearly projected total. 

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