While the condition of the U.S. corn and soybean crops has improved, there remains concern over the maturity pace. Field scouts claim both crops are currently behind their normal maturity levels by two to four weeks. This is not a major lag, but it is enough to cause some concern for how the crops finish. One is the possibility that crops will be finishing out under late-summer heat. Another is that crops could be impacted by an early frost or freeze. Even if neither of these would impact yield they could definitely affect quality. These possibilities are keeping a certain amount of risk premium in the market even if current conditions are not as threatening.
We are starting to see more attention focused on commodity demand, mainly on soybean exports to China. Chinese officials have trimmed their soybean import projections on the heels of the ongoing African Swine Fever outbreak. Chinese officials now believe total soybean imports this year will fall 3-4 million metric tons short of initial estimates. The question is when this may show up in U.S. Department of Agriculture projections.
The main reason for the large reduction we are seeing in Chinese soybean demand is the drop in pork production following the ASF outbreak. In June alone the Chinese hog herd shrunk by 26 percent. We are now starting to see a build in Chinese poultry production though, which may offset some of the loss in feed demand for pork. Poultry production in China is up 5.6 percent from a year ago as this take place.
There is another question being asked when it comes to soybean demand. The U.S. has already sold more soybeans this marketing year than expected, which is a positive sign. At the same time, soybean shipments are not matching sales. This gives us the indication we will see more sales rolled from old crop to new crop than usual, or possibly canceled. It goes without saying this will give us a higher soybean carryout than currently projected.
Winter wheat harvest is progressing across the U.S. at a quick pace due to the hot, dry weather conditions. The most activity has been in the west, but we are now seeing the east get started as well. Yield reports are variable, but so far appear to be average and in line with expectations. Quality is also variable but reportedly higher in the west as well. The wet spring and growing season in the east are the primary cause of the variance.
Trade is showing concern over the latest U.S. soybean crush report. The crush total for the month of June was 148.8 million bushels, the lowest total in the past 21 months. Market bulls quickly credited this to the flooding in the Midwest that slowed processing. While this may have been a factor in the low usage, it does not reverse the trend of four consecutive lower crush totals than a year ago. This is stemming from the lack of export business the U.S. is seeing and increased competition from South America, mainly into China.
We are starting to see estimates released surrounding next year’s Brazilian soybean production. The firm Safras and Mercado released a projection for a record 123.8 million metric ton soybean crop in Brazil for the 2019/20 crop year. This would be a 4.7 percent increase from this year’s 118.2 million metric ton crop. It is believed that Brazilian farmers will seed 90.4 million acres of soybeans this coming year, a 0.8 percent from last year. This puts Brazil on track to surpass the United States as the world’s leading soybean producer and supplier.
The United States is set to see its Russian competition in the global commodity expand. Russian officials have announced they will be investing $70 billion in that country’s grain infrastructure in the near future. This will cover storage facilities as well as transportation upgrades. By doing so, Russian officials believe their grain production will expand to 150 million metric tons compared to this year’s 118 million metric tons.
The protein content of this year’s Brazilian soybean crop is getting market attention. Reports indicate the protein content has dropped slightly from last year’s 37.1 percent to an average of 36.8 percent. The initial reaction is this would deter Chinese demand, but that may not be the case. The lower volume is still within Chinese requirements and competitive with the U.S. The price difference, including tariffs, is also a factor that favors Brazilian soybeans over the U.S.
Basis values across the United States have started to stabilize. Basis has been on a steady improvement for the past several weeks as country movement has been non-existent. Country movement remains light, but we are starting to see demand back off instead. One of these is ethanol where plants have started to go off-line for annual maintenance. Others are claiming they will remain idle until processing margins improve. We are also seeing buyers pass on U.S. offerings in the export market in favor of cheaper supplies from other sources. The combination of these has lessened the desire to own inventory at today’s basis values.
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.