AgriVisor Market Recap

Wednesday, December 09, 2020
Trade started out on the positive side this morning as light buying ahead of tomorrow’s WASDE update took place. This was mostly technical as fundamentally, very little has changed in the market for the past several days. Rains continue to move through South America but where they are falling is being debated on how much benefit they are bringing. We did see a flash sale on corn this morning of 257,071 metric tons to Mexico, but once again, nothing to China. Early enthusiasm came from hopes of an economic stimulus package to counter Covid losses and benefit commodity demand. 
Soybeans took support from news that Russia would impose tariffs on sunflower product exports of 30%. Drought cut the sunflower crop in Russia to a point where exports need to be rationed. The positive side of this is it will likely increase demand for other oilseeds and products, especially soybeans. 

We are nearly one-quarter of the way through the new crop marketing year and US soybean exports already total 1.1 billion bu. This is a record volume and a 69% increase on the year. This also equates to 26% of last year’s crop. The main reason for the large demand is China who is showing what appears to be a never-ending appetite in the global market. Some analysts believe this demand will carry into the second quarter, cutting US ending stocks to a minimal amount. 

Corn loadings are also a record for this time of year at 434 million bu. This is a 68% increase from last year’s pace. While an increase, corn loadings are still falling short of needs per week to reach the yearly USDA projected total. A reason for the sluggish export pace on corn may be the high soybean loadings we have seen, and once they slow, corn may catch up quickly. We will need to see this shift in the near future however or the high corn demand estimate will start to be questioned. 

When it comes to exports most interest has been on China’s soybean appetite, but we are now seeing more attention on corn. China is shopping around the global market for corn offers in an effort to lower domestic prices. The price of corn is China has risen to a point where it is causing economic hardship for the country’s processors. The most interest right now appears to be on Ukraine and Brazilian corn although we continue to hear rumors of interest in US corn as well. 

The price spread between the United States and Brazil on soybeans is nearly equal in the spot market. Brazil is not offering soybeans for export though which is benefitting US sales. This changes as we get into February though, as even with the price spread still relatively flat, freight greatly favors Brazil as a soybean source, especially into China. While China may source its soybeans from Brazil from that point forward, other buyers are expected to step in and fill the void in the US market. 

Trade tensions are again building between the United States and China. This is again the result of political issues and the US placing sanctions on Chinese officials. The question is what impact this development may have on the Phase 1 trade agreement. As of the end of October China had booked $27.1 billion in US ag goods. This was an increase from a year ago as not only are volumes up but the rally in commodity futures, but still leaves purchases well short of the $36.6 billion objective. 

These developments, along with an apparent leveling of Chinese purchases, is raising future trade questions. For the past several months we have seen an incredible build in Chinese commodity imports. Chinese needs are now leveling out and a continued build will likely slow. This does not necessarily mean Chinese demand will decline, however, as China still needs imports to satisfy an ever-growing demand. We are seeing doubt cast over the expected increase in Chinese trade in the second part of the Phase 1 agreement. 

Ethanol manufacturing data for the week ending December 4th was bearish for the industry. Ethanol production totaled 6.94 million barrels, a 119,000-barrel increase on the week. This was the highest weekly production figure since March. Ethanol stocks increased a large 843,000 barrels though, and now stand at 22.08 million compared to 21.8 million a year ago. This is the largest US ethanol inventory since May. 

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