More attention is starting to be placed on Chinese soybean trade with the United States, or the lack thereof. At the present time the United States only has 1 unshipped soybean cargo on the books for China. The week prior, the United States did not load out any soybeans to China, the first time this has happened since December 2018. Even with cheaper soybeans coming out of Brazil this absence of Chinese demand is unheard of. This is starting to raise more doubt over the benefits of the Phase 1 trade deal, even with China’s reassurance it will buy soybeans from the U.S.
The base values for crop insurance have now been set. For corn the base comes in at $3.88 versus $4.00 a year ago. For soybeans the base is $9.17 versus $9.54 last year. These values are the average values of December corn and November soybeans in the month of February. Trade will now wait until October to see if these numbers are used to determine price floors or if the market has rebounded.
Now that these base insurance levels have been set, trade has questioned what they could mean for the market, mainly for production. The new base rates give a ratio of 2.36:1, meaning it will take 2.36 bushels of new crop corn to equal the value on one bushel of soybeans. This ratio favors corn production, especially in fringe areas of the Corn Belt where acreage shifting is more likely.
As we approach the spring planting season, more attention is being placed on US weather. While conditions are favorable in many parts of the U..S, others are still suffering from saturated soils, especially in the Eastern Corn Belt and Upper Plains. In the east, some states are reporting to be even wetter than a year ago when fields were abandoned. At this stage, even normal precipitation will be an issue, primarily in regions that still need to harvest last year’s crops. This brings into question the high corn acreage number the United States Department of Agriculture is currently predicting.
Argentine officials have confirmed that the country will be raising its export tax on soybeans from the current 30% to a 33% rate. This is being met with considerable opposition in the country with sources claiming it will lead to reduced soybean production. Sources in Argentina claim the higher tax rate will reduce soybean plantings by an estimated 2.5 million acres this coming year. If correct, this would lower the country’s soybean production by roughly 3 million metric tons. These numbers are questionable though, as the new tax rate will be on a sliding scale, with larger farmers paying a higher export tax.
The U.S. hog industry is in a tight spot. Demand for U.S. pork is running at record levels. Not only is this domestically but from exports as well. While this is positive news, the fact the U.S. pork supply is growing at a faster rate is negative. Just this week alone hog slaughter is up 5% from a week ago. The question now is where additional demand may come from for the pork industry, as without it, any advances in hog values are likely to be limited.
The soybean crush report for the month of February was a record at 166.2 million bushels. For the marketing year from September through February, the U.S. has now crushed 1.06 billion bushels of soybeans. Elevated animal numbers and higher exports are starting to increase the U.S. crush demand. It would not be surprising to see the USDA increase its yearly crush projection of 2.105 billion bushels if the current crush rate continues.
Research from Purdue University and the CME Group indicate farmer optimism towards the markets is improving across the U.S. U.S. farmers are more optimistic now that just a few short months ago, mainly from the U.S. and China resolution on trade conflicts. The approval of other trade pacts such as the USMCA are also benefiting farmer attitude.
The United States export market is being pressured by currency exchange rates. The Brazilian real is currently holding a record low values to the U.S. dollar. This has elevated Brazilian sales as farmers and exporters can generate more income with this spread. Buyers are also favoring Brazilian offerings in this scenario as the soybeans carry a sharper discount to the U.S.
The coronavirus outbreak remains a primary market topic. The World Trade Organization expects the virus will have a “substantial” impact on the world economy. As a result, many countries, including the U.S., have cut interest rates to help off-set the potential impact of the virus. Economists believe the full effect of the coronavirus has not been felt yet, which is concerning as the financial markets have already been under considerable pressure. We are now seeing more safe-haven buying though, which has been a great benefit for the precious metals.
This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at firstname.lastname@example.org. You can also follow Karl on Twitter via @ksetzergrains.