Trade optimism leads the market
The market has been busy digesting news from the prior week of the United States and China coming to a phase one trade deal. China has imported 25-28 million dollars of agricultural products in the past few years, the high was in 2012 when Soybean prices were $15 a bushel. Soybeans typically account for approximately 50 percent of their buying.
For China to increase to 32 million, 40 million or 50 million annually is going to require a significant increase in several commodities. As AFS still is impacting the swine population, some estimates are as much as 50 percent, soybean demand currently would struggle to fill these exports. However, a demand for pork and other meat products could see higher exports to China. China also promised further purchases of not only commodities but also energy, pharmaceuticals and financial services.
The prior week’s commitment of traders report showed the fund/speculative crowd much shorter than anticipated in soybeans, estimated at still over 100,000 contracts. Short covering in soybeans is also helping push beans higher post trade deal confirmation. Fresh Chinese demand is anxiously awaited, as U.S. beans are cheaper in the world market than South American destinations, but some U.S. agencies think after the last round of purchases Chinese crushers may be able to wait until cheaper new crop beans from South America are available.
The National Oilseed Processors Association (NOPA) released their November crush report. Soybean crush volume was reported at 164.9 million bushels, versus expectations of 172. This is also below the October total of 175.4 million bushels. Last year’s November crush total was 167 million bushels. The USDA is looking for a .5 percent increase over the entire year. From September to November, our cumulative crush stands at 493 million bushels, down 7 million from last year’s pace.
A late update to the spending bill was the addition of $1-a-gallon tax credit that subsidizes biodiesel and renewable biodiesel production through 2022. This deal provides policy certainty for the biodiesel industry and continued growth.
U.S. corn export shipments continue to lag the seasonal pace needed to hit USDA’s target. This is partially due to a strong U.S. cash basis and cheaper corn coming out of South America. Brazil’s weaker currency also helps their competitiveness with U.S. markets. Overall corn shipments this marketing year are a small 285 million bushels, down from 630 million at this point last year.
Infroma released there updated estimates for 2019 yield/production and 2020 acreage. The 2019 U.S. corn yield is estimated to be at 167.4 bpa, down from 168.6 bpa the prior month. Also, U.S. soybean yield is estimated at 46.8 bpa, down from 47 bpa last month. 2020 U.S. corn acreage is estimate at 94.1 million acres, soybean acreage is estimated at 86.3 million acres. Using a trend line yield of 177.5 bpa for corn, this would result in a carryout just under 3 billion bushels under our current demand. This would imply a stocks to use at around 21 percent, the largest since the biofuel era.
Argentina announced a proposal to increase export taxes, as the newly elected government steps in. Analysts are expecting the export tax increase to limit planting in 2020/2021, this would affect the production of corn and soybeans. Argentina usually produces around 2 billion bushels of soybeans and also 2 billion bushels of corn. While the increased tax could affect Argentina’s exports, it could help the U.S. with having more competitive values on soybeans globally.
For more information, you may contact Alex Londerville at (515)-341-7040, or e-mail at firstname.lastname@example.org. The opinions and views expressed in this commentary are solely those of Alex Londerville. 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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