Weekly Market Review
Vegetative imagery maps released recently showed large yield potential of Argentina’s crops. Experts are drawing comparisons between this year and 2007. That year, corn production was 17% above trend and soybeans exceeded trend by 12%. If realized this year, both would exceed last year’s crop by over 30%. The same imagery maps show that Brazil’s outcome seems less clear. In comparable years Brazil’s corn has seen anywhere from 9% below trend, to 14% above trend. Soybeans on comparison have tallied anywhere from 10% below to 17% above trend yields. Sources say that the most comparable years are 2012 and 2014, where corn ranged 8-10% above trend and soybeans fell 6-10% below.
Soybean production in Brazil is nearing the point where weather is starting to become less of a factor. Many believe we have seen the lowest production forecasts of the year. Conversely, Argentine weather will have trades attention. Current forecasts are calling for increased temperatures and only light rain for the next two weeks in that country. Trade is hypersensitive to this news as last February, hot and dry weather began to diminish soybean production. From February to May, Argentine soybean production fell 15 MMT.
Argentina’s Rosario Exchange recently revised their production forecasts for corn and soybeans. Their estimates for corn production stand at 46.5 MMT, up 2.5 MMT from their latest estimate. Their soybean forecast is at 52 MMT, which is 2 MMT above their last estimate.
For the week ending February 15th, weekly ethanol production saw a decrease of 33 thousand barrels to 996 thousand barrels produced. Total ethanol stocks saw a build of 447 thousand barrels to 23.91 million barrels. Retailer interest in E15 across in the United States has been increasing as President Trump has been touting the new law implementing E15 year around. Even though these laws are not in place, retailers seem confident that the President will follow through with his promise.
Since 2010, domestic corn demand has grown by an average of nearly 250 million bushels each year. This past year’s growth is estimated at 66 million bushels, whereas the prior year saw an estimated growth of 150 million bushels. This growth is needed as trend yields continue to climb as technology and farming practices keep improving.
As the trade war lingers on, China continues to shop from other sources to cover needs. It was reported that for the first time in history, China is working to gain approval to import corn and barley from Uruguay. Soybean purchases last week from Brazil and Argentina also show that China is still purchasing on their own terms.
Export inspections for the week ending February 14th fell within expectations for corn and soybeans. Corn loadings totaled 37.1 million bushels putting the current pace 6% ahead of the pace needed to reach the USDA’s forecast. Soybean loadings came in at 37.9 million bushels, which is above the 10-week average but still lagging the pace needed by 26%. The wheat figure fell below trades expectation and the needed weekly amount at 13.1 million bushels.
Soybean exports continue to lag with the ongoing Chinese trade negotiation gridlock. Export inspections for soybeans were as expected for the week and China accounted for almost 15 million bushels. However, the 435 million bushel shortfall from the USDA’s projection will not be erased by good will purchases during the negotiation process.
Reports circulated during trade negotiations recently that China offered to increase purchases of US agriculture products by $30 billion over 2017. Rumors have been circulating that China is looking to approve US ethanol and DDG’s for import. President Trump also mentioned the possibility of large purchases of US corn by China. There has been no action taken nor has there been any further mention of tariff increase deadline of March 1st.
The USDA Ag Outlook Forum took place Washington this week bringing a plethora of information from inside the great minds of USDA. The USDA projects 2019 US corn acreage at 92 million acres versus the 89.2 million in 2018. Soybeans are projected at 85 million acres compared to last year’s 89.2 million acres. Wheat plantings are expected to drop to 47 million acres compared 47.8 million acres in 2018. The tug of war between rotations will continue as the market stands anxiously waiting for a trade deal to be completed. All this considered fieldwork is just around the corner.
Corn prices have been sluggish despite stocks to use ratio of 11.7%. Since Jan 1, the corn/soybean price ratio has been at 2.37. Historically a ratio below 2.3 indicates a shift to corn acres. Looking back to 2006, when the price ratio is above 2.4% corn acres decline. With the strength in the soybean complex, the uncertainty of big acres switching to corn remains.
The Canadian Pork Producers Council announced that a rumor that African Swine Fever was found in Canada was false. The news on social media sent hogs limit down and added pressure to grains. There has been some concern about the disease reaching North America through shipments of feed ingredients from China. The disease continues to spread in China as it was found for the first time in the eastern province of Shandong. That region is a major livestock production area and further spread could reduce feed demand even more.
For more information, you may contact Adam Suntken at (712)-454-1061, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Adam Suntken. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.