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KARL SETZER

By Staff | Apr 4, 2014

“It has long stated that the issue in the world soy complex is not actual supply, rather logistics.”

Global grain demand is starting to be more heavily questioned, mainly Chinese soybean usage. Over the past few years we have seen China’s soybean demand climb at a rapid pace as the country’s economy improved.

The fact that more of China’s population was living in urban settings also increased food demand on a whole. China’s population is aging rapidly though, and some economists believe that within a few short years, China’s commodity demand will start to fade.

Even though China has posted negative crush margins for the past several weeks, the country has not slowed its soybean buying. This is from the fact that many of China’s soybean crushers spend a large amount of their time operating with negative returns.

However, when soybean crushing is profitable, processors make more than enough margin to cover losses the rest of the time. Processors can also slow operations as much as 70 percent when margins are negative to limit their exposure.

A commodity use that is being heavily debated in the domestic market is corn for ethanol. The U.S. ethanol market appears to have plateaued with few new plants being constructed.

As a result, it may be hard to publish a corn use much higher than the 5 billion bushels the USDA is currently forecasting.

In fact, given recent monthly grind records, even this figure may be as much as 400 million bu too high.

Another corn use that is being disputed is feed demand. While corn is the most affordable feed grain at this time, and is being used heavily in rations, animal numbers are causing doubt in the market.

Not only are cattle numbers down from a year ago, but the PED virus has caused a sharp drop in hog numbers, as well.

Shipping delays have not impacted South America’s harvest this season as much as predicted. The main reason for the improved loading times has been a harvest that has been spread out over an extended period of time.

A change in delivery procedures that schedules when a farmer can bring soybeans into ports has also greatly alleviated long lines at export terminals.

There are still a large number of ships waiting to be loaded at most Brazilian ports, but these vessels would be sitting in another region of the world if not in South America, and does not necessarily mean loadings are delayed.

As it is every year, trade is debating the quality of South America’s soybean crop. In past years the United States used the fact it produced higher quality soybeans as a reason to demand a premium in the global market.

This is not the case anymore, and in fact, a large portion of South America’s soybeans have a higher oil content than soybeans from the United States. Some buyers are now paying a premium for South American soybeans depending upon on their oilseed uses.

Basis continues to weaken across the interior market, and in some cases, buyers are only offering futures contracts for deferred delivery. One reason given for this is that freight issues have caused transit costs to increase substantially.

There are some thoughts that farm-stored inventory may be higher than what the USDA has been reporting as well, and buyers do not need to push for deliveries.

The spread between U.S. and South American soybeans have reached a point where imports into the U.S. market do make economic sense.

China could easily re-sell current South American bookings into the United States in an effort to alleviate congestion at that country’s ports.

It has long stated that the issue in the world soy complex is not actual supply, rather logistics.

We are now at a point where the logistics are starting to work themselves out.

Karl Setzer is a commodity trading advisor/market analyst based in the West Bend office of MaxYield Cooperative. He can be reached at (800) 383-0003.

The opinions and views in this commentary are solely those of Karl Setzer. Data used for 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.

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