The U.S. continues to see heavy competition in the global corn market from Brazil. In the month of August, Brazil exported a record 7.65 million metric tons of corn. For the same month of 2018, Brazil only exported 2.9 million metric tons of corn.
Brazil’s record corn crop last year will allow them to remain a player in the global corn market much longer than usual as well. In turn, we have seen Brazil’s soybean exports decrease as port space is used for corn loadings. Brazil’s soybean exports in August were down 34% from a year ago at just 5.32 million metric tons.
When it comes to the global soy market, U.S. soybeans are some of the cheapest currently being offered. This includes Brazil and Argentina who are both above the U.S. on their soybean offers. The difference is that the world’s leading importer, China, has tariffs on U.S. soybeans. For them this makes our soybeans the most expensive. While we will see other buyers show up in this scenario, they are not making up for the loss of Chinese business.
When it comes to commodity demand on a whole, all eyes are on China. Not only has China cut back on U.S. imports, but from Brazil as well. This is the fallout of the African Swine Fever spreading through the country and diminishing demand. It is quite likely this will change the demand structure of the world market for the next several years. That said, China did account for over half of the soybeans inspected for export last week.
Trade is also showing concern over domestic commodity demand, mainly corn for ethanol. The USDA is projecting a robust 5.475 million bushels of demand for ethanol manufacturing for this marketing year, but analysts are not in agreement on this number. This is mainly from the fact we have seen sixteen U.S. ethanol plants go off-line in recent months due to poor margins, with some of these claiming they will remain idled indefinitely. This slowing demand and sluggish exports are starting to negate some of the concern over slower production for this growing season.
A result of this slowing demand has been a weakening of basis across the interior market. We have also started to see a slight increase in country movement ahead of the upcoming harvest. This is especially the case in areas where crops look good, primarily in the Western Corn Belt. Export demand has also started to soften as we see less than hoped for demand from the global market as well.
Trade is keeping a close eye on the price spread between corn and wheat. In recent days this has narrowed to one dollar, and at times been even tighter. Traditionally this will favor wheat usage as a feed grain, especially if corn supply is tight. If corn quality is brought into question, we can see even higher feed usage of wheat.
We are starting to see more interest placed on crop quality this year, mainly on corn. Corn maturity remains slow which is increase the chance of at least some of the crop being immature when harvested. In such years, corn quality tends to be low, mainly test weight. As a result, import buyers are showing hesitation in booking U.S. corn at this time as they are concerned over the possibility of a low-quality crop.
Brazilian weather is starting to become more of a market factor. Conditions in Brazil have turned drier than expected over the past 90-days. Reports indicate 88% of the country’s corn and 96% of soybean fields that would be planted first reporting drought conditions. Typically, the initial planting season in Brazil starts on September 15th, but these dry conditions have delayed most of that activity.
Data shows that the Market Facilitation Payments from the government are keeping many farmers across the U.S. in business. These payments were developed following the trade war with China to help limit its impact on cash flows. Numbers indicate that an Iowa farmer will show an average soybean profit of 29 cents per bushel rather than a 91-cent loss without. On corn, an Iowa farmer will see a profit of 41 cents instead of breaking even. For a Kansas wheat farmer, the cash flow goes from a negative 41 cents to a profit of 86 cents. The main problem with these payments, however, is that they do not provide the same support for all farmers across the United States.
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 email@example.com. You can also follow Karl on Twitter via @ksetzergrains.