AgriVisor Market Recap

Tuesday, December 08, 2020
Futures were again under pressure to start today’s session as the market continues to correct from recent highs. Continued improvements to South American weather and a lack of confirmed Chinese interest added to the negative tone of the market. Traders remain concerned with the spread of Covid-19 and the fact more countries are imposing travel restrictions ahead of the upcoming holiday season. The lack of a Covid financial stimulus package is adding to the overall negativity of the equity market. We did see light buying during the session which limited losses. 

As stated several times, one of the most watched numbers in Thursday’s WASDE update will be US soybean ending stocks. The current USDA projection is at 190 million bu of carryover, but this is likely too high. There are thoughts that export demand on soybeans is underestimated by 150 to 175 million bu which would nearly wipe out US ending stocks. If exports are in fact this large and ending stocks continue to decline other uses will likely falter, mainly crush and residual. 

When it comes to soybean demand, all interest is on China. In the month of November China imported 9.6 million metric tons of soybeans. This compares to the October import total of 8.7 million tons. China’s hog herd is rebuilding, and soybeans are needed for feed demand, as well as to replenish government reserves. While a large amount of these soybeans originated from the US, Brazil shipped several vessels as well. China has already booked a large amount of new crop soybeans from Brazil though, so as soon as that crop becomes available, the United States may see its demand drop considerably. 

China is starting to book 2021/22 soybeans from the US as well. To see China booking US soybeans this early is not common and confirms the country’s soybean appetite is unlikely to subside. China buying that far out is not in large volumes but will likely build if the market recedes. 

We are also likely to see alterations to South American production in the balance sheet updates. More private analysts have lowered their Brazil soybean crop projections by 3 to 4 million metric tons. This is putting total crop size at 128 to 130 million metric tons if correct. While a reduction this will still be a sizable increase from last year’s soybean crop. Corn production estimates are holding steady in Brazil at 108 million metric tons by most analysts. Crop sizes in Argentina are also being reduced with many analysts now predicting 48 million metric tons on both corn and soybeans. 

Quality concerns are starting to rise on last year’s corn crop. This is mainly in parts of the Eastern Corn Belt where high levels of vomitoxin are being reported in some areas. This toxin means the corn can only be used for certain needs and greatly affects what a buyer is willing to pay for it. High vomitoxin levels are also a concern in corn byproducts such as distiller grains as the ethanol process tends to elevate toxin counts. 

Political tensions are building between China and several of its trade partners, including the United States. So far this has not affected trade between the US and China, but it has impacted other countries. Most notably is Australia who shut off wheat sales to China last week. China has retaliated by suspending beef imports from six Australian packers. This is likely to benefit other market suppliers, including the United States. 

The Census red meat export totals for October have been released. During the month the US exported 258.4 million pounds of beef. This was enough to bring yearly beef exports to 2.4 billion pounds which is just 5% under the 2019 volume. October pork exports totaled a record 589 million pounds which was enough to bring the yearly total to 6 billion pounds. October makes the 16th consecutive month of record US pork exports. 

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