Markets fade as negotiations continue
March corn and soybeans visited contract lows last Friday, March 1st, but bounced back at the end of the session. Speculative buying spurred the comeback following friendly numbers from the National Ag Statistics Service on January soybean crush at 182.9 million bushels. This put crush 6.5 million higher than a year ago and now 47 million bushels ahead of the USDA forecast. Bulging soybean stocks at wide basis levels are promoting higher crush rates despite lower crush margins than last year. Soybean meal exports continue to remain strong and soybean oil usage has increased from stronger U.S. biodiesel consumption.
On Monday March 4th, U.S./China trade negotiations were rumored to be making some headway. The U.S. has delayed the increase from 10 percent to 25 percent tariff rates last Friday the 1st, as it was considered no longer necessary as talks are progressing. President Trump has asked China to remove all tariffs on U.S. agricultural products. The U.S. has also asked China to remove tariffs on U.S. ethanol to help spur imports into China.
Soybeans are still in the driver’s seat in the grain markets when it comes to reactions to Chinese trade negotiations. However, the only consistency in the negotiation process seems to be the inability to confirm news stories. Most rallies in the grain pits lately fail to materialize by the end of the session. March 27th has become the date to watch as the U.S. and Chinese Presidents expect to meet, potentially resolving this ongoing trade war. U.S. officials have quickly chimed in that more tariffs are possible if China fails to follow through. It would appear we have several weeks of new blurbs and tweets before this dispute is anywhere near settled and more complacency in the grain markets.
Grain markets drifted lower throughout the week’s session, as the search for fresh news and market developments has remained thin. Markets seem to lack vigor as the cat and mouse game of conflicting reports on trade deal progress continues to provide a directionless environment. Market participants are hoping that Friday’s report will give a better idea of supply and demand fundamentals.
For the week ending March 1st, total ethanol production totaled 1.024 million bushels which came right within the range of estimates compared to last week’s 1.028 million barrels. The Midwest production rate saw a decrease of 12 thousand barrels to 952 thousand barrels. Total ethanol stocks saw a large increase of 552 thousand barrels to 24.26 million barrels that was outside the range of estimates. This was compared to last week’s total ethanol stocks of 23.70 million barrels. Notable strength in corn basis has not helped the ethanol margin structure, as plants continue to grind with hopes of a turnaround. The past week’s board action has halted a good portion of farmer selling.
Corn usage is seeing weakness on two fronts, ethanol and exports. While exports are more than 260 million bushels ahead of last year, weekly inspections are falling below year ago rates. Normally in the first quarter of the calendar of the year, corn exports are in their strongest period. Corn use for ethanol is running about 4% behind the same period a year ago. As we approach the mid-point of the marketing year, ethanol use is 50 million bushels behind the USDA’s pace.
U.S. Secretary of Agriculture Perdue announced last Friday that the EPA has confirmed they can implement the new E15 policy by June 1st, in time for summer gasoline blends to included E15. Secretary Perdue has asked the EPA to push the marketplace to be ready by June 1st for E15 blends.
A major highway that leads to Brazilian ports is already muddy and flooded in areas, without the added rain being in the forecast for another week. This is creating logistical problems for Brazilian exports. Along with Brazil’s transportation problems, Reuters reported China blocked a canola shipment from Canada. There is still tension between China and Canada due to a number of issues. With both of these issues, there could be a potential for additional U.S. business.
With China’s economic growth at its weakest in about 30 years, the country to planning to help the economy through billions of dollars in planned tax cuts and infrastructure spending. China lowered its economic growth to a range of 6 to 6.5 percent, compared to the 6.6 percent gross domestic product growth that was reported last year. Officials in China say the slowed growth is tied to the impact of the trade war between the U.S. and China.
Vietnam’s prime minister is calling for “drastic measures” to fight the spread of African swine fever. In the last month, the highly contagious disease has been found in seven areas in Vietnam; which shows how quickly the disease can spread. Over 4,300 pigs have been culled so far in the country, according to data from the Ministry of Agriculture and Rural Development. Vietnam produced about 72 percent of the country’s entire meat production in pork last year, which was about a 2 percent increase from the following year.
For more information, you may contact Brock Beadle at 515-341-7040, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Brock Beadle. 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.
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