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More ethanol plants decrease production

By Staff | Dec 3, 2018

The soybean complex has been swinging like a pendulum as the U.S./China trade tensions show promise one day and tension the next. Hopes are the presidents of the two countries will sit down for a meeting at the G20 summit at the end of the month in Buenos Aries. The trade war between the two looks likely to continue for a while.

While the two countries have a lot to work out, it is narrowing it to a few major issues. The White House has said it does not see the need for additional tariffs as China has stepped forward with a willingness to negotiate. The market is digesting what price equilibrium futures should be at, but a trade deal with China is thought to be the difference of between 750 million or 1 billion bushel carryout.

Even with a resolution in place, the burdensome soybean stocks are not going away anytime soon. The U.S. soybean export picture looks bleak for the 2019 marketing year without some major changes. China’s struggle to control the African Swine Fever does not bode well for soybean meal demand as swine herds continue to be culled.

Not only have tensions between China and U.S. been in headlines but now Australia has been added to the list. President Xi is launching a probe to see if Australia has “dumped” barley into China. This is a very similar situations the U.S. has faced in recent years regarding DDG’s, ethanol and sorghum.

Export Inspections for the week ending November 15th were released Monday, November 19. Corn came in on the lower end of expectations at around 31.4 million bu, down about 14 million bu from the previous week but still significantly ahead of last year. Soybeans were pegged around 38.8 million bu, down about 11 million bu from last week but within expectations. Wheat was at 18.7 million bu, which was up 6 million bu from a week ago.

The soybean export pace for the first 11 weeks totaled 405 million bu, which is down a large 43 percent from the previous year. The current volume is 178 million bu shy of meeting the USDA’s already reduced estimate, leading many to believe further reductions will be made if volumes aren’t increased soon.

The recent drop in crude oil prices is starting to weigh on the corn market. History has shown that corn has followed crude oil prices, higher and lower, with the exception of the last run up in oil prices. Corn futures have been quiet with no fresh news spurring buying interest.

More announcements of ethanol plants shutting down or idling have made headlines again this week, due to the poor margins and trying to lower the production levels. Reuters announced that Green Plains would be idling four plants located in Iowa, Minnesota, Illinois and Nebraska, with the rumored possibility of a couple more to go into idle mode.

Ethanol manufacturing for the week ending November 16th showed a drop in production of 25,000 barrels per day to 1.042 million. Ethanol stocks fell by 723,000 barrels to 22.8 million barrels. This reduced output has been expected as reports of idled plants have been circulating for weeks. Many factors have led to very poor margins causing the slow down.

Malaysia has recently replaced the U.S. as China’s main supplier of ethanol. Recent tariff rules implemented by China has restricted U.S. ethanol from entering into their country. It’s not unlikely that U.S. ethanol may still enter China though, as guidelines state that as long as the imported product is blended with at least 40 percent locally produced fuel, it can be labeled as Malaysian origination.

The need for a standardized futures contract for South American producers and commercial companies to hedge price risk is growing in popularity. South American trade groups have agreed that an open platform will give growers, buyers, and sellers, a liquid market mechanism to hedge and transfer price risk. The exact location for the new trading exchange will be located in either Brazil or Argentina.

Export sales for the week ending November 15th, were in line with trades expectation for corn, soybeans and wheat. Corn sales were near the higher end of trades estimates at 34.5 million bu. Soybean sales fell in the mid-range of estimates at 52 million bu. Wheat sales were on the lighter side of estimates at 12.1 million bu. All three commodities fell below the weekly amount needed to reach the USDA’s estimate.

A recent meeting between the White House and the Senate Majority leader, indicates there will be a push to finish the farm bill before the end of the lame duck session of Congress before the Christmas break. This is a tall order considering Congress faces a December 7th deadline to resolve government spending or face a partial government shutdown. The Senate has opposed further work requirements to the SNAP program and voted 2 to 1 against the proposed draft of the bill.

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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