Tariff debate continues
African swine fever continues to spread in China. It has been in Eastern Europe for four years as it migrated west from Russia. The disease was thought to make its way to Germany in four years, but now has popped up in Belgium. The U.S. is watching the spread of the disease and how it is transferred to avoid exposing the U.S. Lean hog futures have rebounded sharply recently as the trade is becoming more concerned about world pork production.
NOPA reported a record August crush of 158.8 MBU versus the higher 163.5 average estimate. Soy oil inventories at the end of August were 1.623 billion pounds versus the average estimate of 1.751 billion. At the end of July, the crush was 137.73 MBU with soy oil reserves at 1.764 billion pounds. One bright spot came from the USDA announcing a solid export sale of soybeans. 241,000 MT were sold to an unknown destination for 2018/19.
Crop ratings after the close on Monday held no surprises. As crop conditions are less important as we approach harvest, it should have little effect on the trade. Corn maturity continues to run almost 20 percent ahead of last year and nearly 10 percent ahead on denting. As with corn, soybeans are about 15 percent ahead dropping leaves than a year ago. Harvest pace for both corn and soybeans is at 9 percent and 6 percent respectively and only slightly ahead of a year ago.
Ethanol margins continue to remain depressed despite low corn prices. Analysts have argued that inefficient plants will either slow down production or stop making ethanol all together until margins improve. Recent developments show that some companies are indeed following either routes. Until we see gains in this low margin environment, we will see more plants throttling back production or even coming to a complete halt.
Despite recent news of reduced ethanol output, ethanol manufacturing for the week ending September 14th showed an average of 1.051 million barrels of ethanol were produced each day, up 31,000 barrels from the prior week. Even with the increased production ethanol reserves dropped 148,000 barrels. Reserves currently stand at 22.75 million barrels, 7.6 percent higher than a year ago at this time. Trade will be watching this data for the next several weeks to see if production does in fact decrease and how much impact it will have on corn demand.
The Rosario Grain Exchange recently updated their estimates for Argentina’s 2018/2019 soybean crop at 50 MMT, which is much larger than their last year’s crop. This past year drought diminished the size of Argentina’s crop to just 37.8 MMT. The U.S. crush industry has capitalized on the reduced output and have been generating very favorable margins much of the year. In last week’s report, the USDA left their Argentina soy estimate unchanged at 57 MMT. Reports of dryness are again circulating in that country, trade will be watching forecasts as planting season is closely approaching.
The Climate Prediction Center has reported the likelihood of an El Nino winter is 65-70 percent. El Nino winters increase the risk of hot and dry conditions in parts of Brazil, yet there are years on record where Brazil has had above average yields during an El Nino patterns, leaving correlation between them insecure.
Informa released their crop year 19/20 updates. They are projecting higher corn acres, going from 89,000 acres for this year to 93,000 acres next year. This is 4 million more acres than what was planted this year. Bean acres went from almost 89,000 acres for this year to 82,000 acres for next year, which is 7.7 percent below this year.
An announcement was released late last Tuesday that another round of tariffs would be placed on Chinese goods amounting to $200 billion dollars and would begin September 24th. Trump and senior officials said the third list of goods have 10 percent tariffs until the end of the year and increase to 25 percent starting on January 1st, unless the U.S. and China come to an agreement. A large number of fish products, agricultural and manufacturing items are on the new list. A statement issued last Monday from Trump’s office stated that if China takes retaliatory action, he would pursue additional tariffs on Chinese imports amounting to approximately $267 billion dollars. The trade meetings that were to be held next week will likely now be canceled.
Weekly export sales came in well above expectations at 54.5 million metric tons. Trade was expecting a range of roughly 20-37 million metric tons. 34.3 million metric tons is needed on a weekly basis to meet the usda’s export sales estimate of 2.4 billion bushels. Soybean sales came in right at expectations just above 33.7 million metric tons. Trade had a range of roughly 15-33 million metric tons. Soybeans currently need 27.5 million metric tons per week in order to meet USDA’s expectations.
Last Thursday’s market was supported by rumors of the Argentine government potentially raising export taxes on their own corn farmers to 33 percent. This would be a 22.5 percent increase from the current tax of 10.5 percent. Many analyst argue that this will only encourage more soybean acres to be planted in Argentina if this new tax increase does get pushed through. Rumors also surfaced that Argentina bought 15 cargoes of U.S. soybeans and in turn sold 15 cargoes to China. This was also supportive to the soybean complex.
For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at firstname.lastname@example.org. The opinions and views expressed in this commentary are solely those of Kristi Guse. 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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