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Demand remains strong

September 14, 2018
By Mike Hoover - Columnist , Farm News

Weather normally plays a key role in the grain markets earlier in the growing season and by September starts to take a back seat. However, the recent weather pattern has dumped 3-5" of rain on two-thirds of Iowa and half of Wisconsin, with some areas seeing over 8" of rain. Tropical Storm Gordon is being closely watched, as its expected path has the port of New Orleans in its radar. The storm is not expected to reach hurricane status, but with New Orleans in the expected path, export operations could be effected.

Elevated precipitation amounts in the Corn Belt have many believing we could see the effects from mid-season plant disease. Many agronomists in these areas have commented that with the increased rainfall and humid conditions, we could see kernel quality quickly deteriorate. Several have commented that we could see lighter test weight corn because of the speed at which this crop matured.

Argentina has announced export taxes on corn, wheat, soybeans and soybean meal effective September 4th out to the year 2020. While South America is coming to the end of their grain export season, this may be a step in helping the U.S. and China begin negotiations on tariff issues.

Chinese soy demand continues to look bleak into 2019 according to a report from a large Chinese processor. The Jiusan Group bought nearly 60% of the US soybean exports last year, but has been absent from the market since tariffs went into effect on July 6th. China has indicated plans to replace US soybean imports with imports from Brazil. However, sources indicate that China could run out of soybeans in early 2019. Chinese traders fear this could inflate soybean meals prices as beans become scarce and will force them to source alternate protein meal supplies.

The July soybean crush report indicated a strong month at 178.9 million bushels, 23 million bushels higher than a year ago. As expected, soybean meal stocks have increased from a drop in exports. Despite a less than anticipated 12% drop in meal exports, meal usage actually increase by over 2% from last year, thanks to a 9% domestic usage increase. Similar to meal, oil stocks are up compared to a year ago. Soybean oil exports are down 8%, but thanks again to domestic usage, overall usage is 6.5% higher than last year.

Decreased Chinese soy consumption is expected to continue throughout the year. Alternatives to soybean meal are now being used as the price differential has swung in their favor. The increased availability of DDGs along with the idea of lower feed consumption mainly due to African swine fever in Chinese herds could potentially soften the demand of soybean meal buyers.

Elevated exports of U.S. soybean meal can be directly attributed to Argentina's short crop in 2017. Many analyst believe the increased demand of US meal will fall back to traditional levels with the condition of a normal Argentina growing season. Arguably, U.S. crush plants have been seeing record margins over the past year from this export demand.

Informa released their September yield estimates. They have corn yield with a slight increase at 178.8 bpa versus the USDA's 178.4. As expected they increased their soybean yield to 52.9 bpa. This would be an increase of 1.3 bpa over the USDA's estimate. Compared to last year's total crop production, this translates to an increase of a 17 million bushel increase for corn and a large 306 million bushel increase for soybeans.

A bright spot for domestic corn demand has been ethanol crush. NASS has reported July ethanol crush at 481.3 million bu, up 19 million bu. from June. This puts grind 3 percent above last year and 20 million bushels higher than the USDA's current forecast of 5.6 billion bu. While this is favorable for demand analysts note that Brazil's large cane harvest is decreasing needs for U.S. ethanol imports to that country, which were down 35 percent from June to July.

Increased U.S. ethanol production obviously comes with increased production of byproducts, most notably; DDG's. U.S. DDG's exports are only running 1 percent ahead last year versus ethanol production's 3 percent. China's nearly two year old tariffs on DDG's have slowed China's once large import volumes of 4-6 mmt to less .158 mmt. Turkey and Mexico are now the lead buyers of U.S. DDG's.

Corn demand for ethanol has been thought to be underestimated by the USDA recently but concerns are arising about future demand. Cash ethanol values are reported the at the lowest levels seen in a long time, bringing to question the whether the older less efficient plants will continue to operate under little or in many cases negative profit margins.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. 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.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. 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.

 
 

 

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