AgriVisor Market Recap

Wednesday, November 25, 2020
Futures were mixed to start today, but by mid-way through day-trade we were seeing red across the board. Consolidation ahead of the Thanksgiving holiday led to an early loss of interest in the market and futures suffered as a result. Technical resistance, beneficial rains for Argentina, and additional reports of soybean cancellations from China added to the negative tone. Thoughts that the USDA underestimated world grain production in the latest set of balance sheets applied additional pressure to those contracts. Losses were held in check by a hesitation to exit long positions given the need for improved weather in South America to prevent further yield loss. 

Yesterday the soy complex was hit hard early on from rumors China had cancelled several cargos of US purchases. While this is possible, what is more likely to have happened is the purchases were shifted from the US to Brazil as an origination point. This is not uncommon, especially late in the export season when China tends to double book their needs. Given current demand models, these cancellations may actually be needed to ensure adequate domestic reserves. 

China imported a large 8.69 million metric tons of soybeans in October, a 41% increase from October 2019 as the country continues to build its reserves. Of these imports 3.4 million tons came from the United States, a large 196.4% increase from last year. Brazil remains the leading source of China’s soybean imports though with 4.2 million metric tons being traded. This was an 11.6% increase on the year. 

Another commodity China continues to import is feed grain. In the month of October China imported 1.14 million metric tons of corn. This puts yearly Chinese corn imports at 7.82 million metric tons, a 97.3% increase from a year ago. This is also above the official 7.2 million metric ton import projection from the Chinese government. China is also importing a large volume of sorghum for feed, with total imports four-times above last year at 4 million metric tons. 

We are starting to see more adjustments to Brazilian soybean production estimates. Estimates on the crop grew as large as 133 to 134 million metric tons prior to the drought conditions starting to build. We have now seen crop size estimates back down to 128 to 129 million metric tons. The unknown in these estimates is acreage, as even with decreased yields, higher plantings may negate some of the loss. 

There is also doubt rising over Brazil’s corn production. All interest at this time is on the Safrinha crop where some sources claim plantings may decline from initial estimates. Initially it was thought Brazil would produce upwards of 106 million metric tons of corn this year, with much of this coming from the Safrinha winter crop. This has been scaled back due to current weather and soybean development issues, but not a significant amount. Record values will keep corn paintings elevated, and the third crop will expand if they remain as high as they currently are. 

We are seeing uncertainty in the US corn balance sheets as well. Export sales and inspections of corn remain ahead of last year at this time which is putting a floor under futures. The uncertainty comes from the fact that even with export loadings for the marketing year up 65% from a year ago, we are still behind the pace needed to reach the yearly 2.65 billion bu export projection. The United States is expected to see little competition until next April so there is time to improve. 

Ethanol manufacturing data for the week ending November 20th was released today with mixed numbers. We did see a 2.9% increase in production of 196,000 barrels from the previous week for a 6.93-million-barrel total. Ethanol stocks surged 663,000 barrels though to total 20.87 million. Ethanol reserves are now above the year ago total of 20.27 million barrels. 

A reminder, all trade will be closed tomorrow for the Thanksgiving Holiday. Trade will resume Friday morning at 8:30 CT on commodities in Chicago. Friday will be a short trading day with the markets closing at 12:05 PM CT. This will generate thin trade on Friday, but it could heighten volatility. 

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.