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AgriVisor Market Recap

 
Thursday, November 19, 2020
Futures in Chicago started out on the negative side today but managed to gain back much of the initial losses by mid-session. Initial pressure came from overnight rains in Brazil and forecasts for more. The fact remains that all of South America needs this rain and more limited selling interest. Weekly export sales were better than expected on corn and soybeans as well, although we did not have any flash sales reported this morning. Traders continue to show more interest in soybeans over grains, which allowed that complex to rebound today while grains remained negative. 

Export sales for the week ending November 12th heavily favored corn and soybeans over wheat. Corn sales were above trade estimates and the volume needed on a weekly basis with 42.9 million bu. Soybean sales were also above both trade guesses and the needed amount with 51 million bu. Wheat sales were a marketing year low at just 7 million bu. Wheat is finding competition from cheaper offerings out of Australia, same as the rest of the world’s wheat exporters are. 

Beef and pork exports were also mixed. Beef sales for 2020 were a calendar year high at 46,400 metric tons. Sales of beef for 2021 were also high at 14,100 metric tons. Pork sales for 2020 were down 32% from a week ago at 28,900 metric tons and 2021 pork sales were a light 2,300 metric tons. There was very little sold to China on either product which was negative for futures. 

The likelihood that US soybean demand is being underestimated this year is increasing. The main source of soybean demand remains China who has already booked an estimated 34 million metric tons. Of this, 27.5 million metric tons can be confirmed from sales reports, and another 6.3 million metric tons that are in the unknown category are also thought to be to China as well. If the current rate of US soybean selling continues it will totally deplete inventory before next year’s harvest. 

The question is how long it may take to remedy the short supply situation in soybeans. Brazil totally sold out its soybean supply last year, and the United States is on track to do so itself this year. Given the recent demand we have seen on the soybean crop that is still being planted in Brazil that country is likely to deplete its reserves again next year. Given this trend, it may take several years to rebuild the global soybean supply without major production expansions taking place. 

Brazilian farmers have been active sellers of soybeans this year, same as in the United States. The difference between the two countries is that the US farmers sold and delivered the majority of his soybeans prior to the steep rally we have seen in futures in recent weeks. While the Brazilian farmer made sales, they were on soybeans that are still being planted. As a result, many farmers in Brazil are now indicating they will walk away from their contracts, same as they did in 2003 and 2004. While the contracts may simply be negotiated to a higher value, the possibility of delivery issues is causing concern with some import buyers. 

Trade is not just looking at Brazil and Argentine soybean production in South America, but on all countries. Right now analysts believe the four major soybean producing countries in South America will produce a combined 193 million metric tons of soybeans this year. While a large crop, this is actually less than the USDA estimate of 196.4 million metric tons. This may not seem like a significant difference, but given current balance sheets projections, the world market needs every soybean that it can get. 

We are now starting to see more adjustments made to South American corn production with an emphasis on Brazil. There is more uncertainty when it comes to the Brazilian corn crop, with some sources raising their crop estimates. A few of these are at 106 million metric tons which is even higher than the official number from the Brazilian government. The firms putting out the higher production estimates are also quick to say they will likely decline though if weather does not improve in the near future. 

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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