AgriVisor Market Recap

Monday, December 14, 2020
Trade started out the week mixed with soybeans on the positive side and the grains under pressure. Soybeans took their support from ongoing weather concerns in South America, although these were tempered by updated old crop production figures. Soybean traders continue to point to ending stocks and how they are likely less than what is currently being predicted and using it for support. The grains were tempered by the lack of a bullish news story and changes to Russian export taxes that will increase the country’s short-term exports. 

The Russian government has announced it will be placing a $25.00 per metric ton export tariff on wheat starting February 15th. The country will also limit wheat exports to 17.5 million metric tons (mmt). Any sales above this quota will be taxed at 50%. Thoughts are this will cause Russian firms to dump as much wheat as possible into the global market over the next 60 days. 

Even with today’s losses, wheat has turned into the stronger of the grains which has not happened in several years. A record global wheat crop is expected this year, yet futures have posted sizable advances in recent sessions. This is coming from the increase we are also seeing in wheat demand, mainly for feeding in the Asian market, including China. This has pushed the US wheat export forecast to its highest level in five years. We are also seeing countries restrict wheat exports to promote food security. 

Cases of bird flu continue to increase with the most being noted in Japan. The strain of bird flu that is being transmitted is highly pathogenic and causing several bird flocks in the country to be culled. So far sources in Japan claim 2.5 million birds have been culled to try and prevent the disease from spreading. If cases continue to increase it will start to impact feed grain demand, even if just temporarily. 

Parts of Brazil have seen their driest conditions in the past 40 plus years. The main state reporting drought conditions is Mato Grasso, but the top four soybean producing states are all on the dry side. The other side of this story is that timely rains have fallen in Brazil and been enough to save most of the crops. Interest is now on January weather as that can have a significant impact on final yield. 

Brazil has seen a considerable build in its soybean imports after over-selling its production. To date Brazil has imported 748,000 metric tons of soybeans, mostly from Paraguay. This is a huge 470% increase from last year. This is also 30% more than the last large import year of 2014. The question now is if this will hold Brazil until the new crop soybeans are available. 

One surprise in Brazil has been the increase in production estimates by the firm ABIOVE. ABIOVE increased their 2019/20 soybean production estimate to 127 mmt from their previous estimate of 126.4 mmt. The firm is also predicting soybean exports of 82.3 mmt for the 2020 calendar year, up from their previous estimate for 82 mmt. ABIOVE is also pegging soybean processing at 45 mmt compared to their last estimate for 44.6 mmt. 

Export inspections for the week ending December 10th heavily favored soybeans over the grains. US soybean inspections totaled 87 million bu (mbu), well above the weekly needs of 27.6 mbu to meet yearly USDA expectations. Corn inspections totaled 34.9 mbu, and while up on the week were under the 59 mbu that is needed on a weekly basis. Wheat inspections were on the light side as well with just 9.6 mbu, 10 mbu less than a week ago and less than half of the needed weekly volume. 

Even though the December numbers have just been released, trade is already looking forward to the January supply and demand figures. For one, trade is expecting to see an increase in soybean exports to further reduce ending stocks. Trade also believes we will see a more accurate estimate on the South American crops. Above all the quarterly stocks data will also be released with the January WASDE numbers to give us our first quarter usage. 

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