We are starting to see more interest on corn sales and how they may be greater than the USDA predicts. Cumulative corn sales are now 96% of the yearly projected total. Given uncertainty in other corn production countries, mainly Brazil, Argentina and Mexico, we may see more buyers come to the U.S. for needs. Some analysts believe U.S. corn sales could hit 3 billion bushels this year, leaving ending stocks at a minimal 1 billion bushels.
The buyer of U.S. corn that is gaining the most attention is China. According to data from Ag Resources, China’s cumulative corn bookings from the United States current stands at 885 million bushels. There are also 80 million bushels of corn sales in the unknown category that is believed to be China as well. This puts total Chinese corn bookings at 7% of the entire 2020 corn crop. The question now is if China will continue to buy corn from the U.S. or if they start sourcing alternative grains for feed as reported.
Trade is also monitoring soybean demand developments with China. Chinese soybean values have reached record values in recent weeks as stocks dwindle ahead of South American deliveries. Traders are also monitoring the expected increase to corn plantings in China this year and how that may reduce the country’s soybean production in future years. China does have a record volume of soybeans to arrive from South America though, and this is limiting soybean potential.
Another factor that is being closely monitored when it comes to Chinese demand is the ongoing cases of African Swine Fever in the country. New strains are being reported which is making the virus harder to contain. This is why experts in China now claim it will be closer to the end of 2022 before the country’s hog herd is back to pre-outbreak levels. The concern with this is what it means for feed grain imports. It also raises questions on the possibility of additional beef and pork exports rather than grains.
The U.S. beef industry is giving trade mixed signals. According to recent slaughter numbers, beef processing numbers are down 5% from a year ago. At the same time, U.S. beef production is only down 3% on the year. This is from higher cattle weights, with the monthly average being 20 pounds higher than last year. Given the fact the U.S. already has record cattle inventory numbers, if this trend continues, it will start to cause a build in beef reserves.
Country movement of corn and soybeans has dropped off considerably in recent weeks. Typically we see country movement increase ahead of the spring planting season as farmers empty bins prior to their busy season. We may not see much for movement this year though given the large amount of selling that took place last fall. Reports are now coming in from across the Corn Belt that remaining inventory will not be marketed until there is a better indication of this year’s production.
Even with this tempered country movement, basis values are not showing significant strength. The average spot soybean basis across the Corn Belt is a negative 40 ½ cents. A year ago this was a negative 44 cents. Corn basis is actually wider than last year at a negative 23 ½ cents. Last year this was a negative 11 ¾ cents. Higher futures are the primary reason for the lethargic basis action, even with sluggish movement. Instead, buyers are opting to offer more quick ship bids than post a defined basis.
We are seeing a shift take place in the attitude towards the U.S. soil moisture ahead of the planting and growing season. Several large rain events have moved through the United States in recent weeks, greatly alleviating dry soil conditions. In many regions of the U.S. Plains, drought has been totally removed from maps. We are also starting to see drought conditions reduced in the Corn Belt, which is removing some of the worry over a major U.S. drought at this time.
According to data from the news group Reuters, the U.S. share of the world commodity market continues to shrink. The U.S. will provide the world with 25% of its corn, soybeans and wheat needs this year compared to over 50% just 30 years ago. The biggest decline has been to soybeans as the United States used to supply the world with 95% of its needs. Elevated production in other countries is the primary reason for the declining U.S. market share, but years with low production also pushed buyers to other sources where they remained.
The recent rally in energy values has been met with mixed responses. Consumers are feeling negative effects of the rally as it heightens their costs and elevates the impact they are feeling from inflation. The U.S. renewable fuel industry has benefited from the rally though and brought profitability back to many plants. Not only is this for ethanol but for biodiesel as well. Thoughts are these margins will get even better as more travel takes place this summer.
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.