AgriVisor Market Recap

Thursday, November 12, 2020
Soybeans and grains were under pressure today as funds took profit on recently established long positions. Trade volume was heavy today, but fresh news was limited, and this added to the weaker futures. The most interest in the market remains the tight balance sheet forecast on soybeans and if we have already seen rationing develop. South American weather remains a driving force as well, and outlooks are mixed for much of South America. Rains are in several forecasts but the amount of precipitation that will be received is mixed and unlikely to alleviate drought conditions. Concerns that Covid will cause a loss of commodity demand before a vaccine can be distributed weighed on futures as well. 

Harvest is just wrapping up across the United States, but farmers have already marketed a large share of their new crop bushels. This is especially the case on soybeans where an estimated 75% of the US crop has been marketed. On corn and estimated 50% of newly harvested bushels have already been marketed. Much of this selling was done prior to harvest taking place. The question now is when the remaining bushels will be sold, and the likelihood of this happening anytime soon is low. 

Now that harvest is wrapping up, we are starting to see elevated interest in next year’s crops, and along with it, potential market returns. Economists are starting to predict higher fertilizer values for the next crop cycle as more acres are expected to be seeded to corn and soybeans. There is also a belief that farmers will spend more on inputs as they have adequate cash from both commodity values and government payments from the previous crop. It is also believed that energy costs will be down next year, offsetting much of the higher fertilizer cost. 

We are also seeing more interest on the South American crops and what their total production will be. One beneficial factor for Brazil is that recent expansion to crop production has been in regions where more favorable weather has been taking place. This may limit crop loss in the country. As a result, forecasters are keeping Brazilian crop sizes and in turn exports at high levels. There is less optimism on the Argentine crops where more of the country is being impacted by drought conditions. 

What is becoming more of a concern on the South American crops is the slow development of already planted fields. Reports from Brazil indicate some soybeans that were planted over a month ago have yet to germinate. If this lingers it will push development back all year and could impact final yields. This may also reduce the window to seed the Safrinha crop as well. 

Ethanol manufacturing data for the week ending November 6th was released today with mixed numbers. Production for the week totaled 6.84 million barrels, a 112,000-barrel increase from the previous week. This was still a 5% reduction on the year. Ethanol stocks increased a sizable 484,000 barrels and now stands at 20.16 million. This is just under last year’s 21-million-barrel inventory. 

Trade is starting to pay more attention to Chinese pork demand. China was a huge buyer of US pork to start the calendar year but has decreased since. Of the US revenue generated by pork sales to start the year 25% came from China. By September China’s share of revenue generation was down to 4%. This same trend has taken place in beef. China is buying less meat from the US as its domestic production has been rebuilding. 

The primary reason for the decline in Chinese pork buying is the rebuilding of its domestic supply. China has seen a steady increase to its pork production in recent months which is not only reducing its need for imports, but also weighing on its domestic values. Pork values in China declined in October making it the first month of price contraction in nineteen months. China’s domestic pork market is now under the global market and making imports from any source uneconomical. 

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.