Coronavirus continues to spread
The spread of the coronavirus was the main story throughout trade again this week. Reports of new cases and deaths continue to climb each day. Due to the catastrophe, rumors have been circulating that China will be asking for leniency on the original pledges agreed upon in the phase 1 trade deal. The agreement has a clause that states China and the U.S. will consult, “in the event that a natural disaster or other unforeseeable event,” delays, either from complying with the agreement. China has yet to formally request a consultation, but according to a recent Bloomberg release, those familiar with the matter said they will likely ask at some point.
Despite these rumors, China announced they will cut tariffs on $75 billion of U.S, goods by 50 percent in an effort to comply with the signed deal. The cuts are said to be on tariffs that were applied on September 1st in response to U.S. applied tariffs. The larger retaliatory tariffs and pre-trade war tariffs will remain in place. While the proposed cuts only account for a very small portion of the total tariffs in place, and will do very little to increase demand for U.S. commodities. It is still seen as a goodwill gesture and a move in the right direction. The tariff reductions will be enacted on February 14th as the official start to the phase one deal begins on February 15th.
H5N1 bird flu
Besides coronavirus, China is now battling a deadly strain of H5N1 bird flu which is similar to the bird flu that spread through the U.S. five years ago. A poultry farm, in a southern province of Hunan, has culled around 18,000 chickens in effort to prevent further spreading. Poultry demand has been increasing in China since the African swine fever decimated pork production in the country. This will continue to affect China’s meat reserves due to the dwindling supply and likely continue to open market opportunities.
Corn exports continue to rise
Export sales of corn last week rose for the 4rd consecutive week to 49.1 million bushels. Cumulative sales now stand at 897 million bushels, well behind last year’s pace.
Corn loadings are also trailing last year’s pace significantly, bringing into question the USDA’s export sales forecast of 1.775 billion bushels. The current forecast is for a year-over-year decline of 290 million bushels, but actual sales are 12 percent behind the pace needed to reach their target.
Current corn values in the U.S. Gulf are competitive which should at least help the gap from getting wider in the near term. Gulf offerings are now below Ukraine by $8.00 per ton, which has attributed to the increased sales in recent weeks. Although, U.S. values will need to remain competitive as Ukraine is said to have adequate stocks remaining, and Brazil supplies could hit the ports as soon as June. Without any unforeseen issues, this only leave the U.S. a small window to be competitive.
Brazil’s soybean harvest on track
Brazil’s latest soybean harvest pace was reported at 9 percent, which is on track with the average for this time of year. Early yield reports continue to be favorable, prompting more forecasters to increase production estimates. INTL FC Stone Brazil, increased their estimate recently by 2 percent to 124 million metric tons (mmt) from 121.8 mmt. The latest estimates have the soybean crop 8 percent above last year. If realized, 124 mmt would be the largest Brazilian soybean production on record by 2 mmt.
INTL FC Stone Brazil also increased their forecasts for Brazil’s first crop corn with estimates now standing at 25.9 MMT. They left the safrinha, or the second corn crop estimate, steady at 72 mmt. Some other forecasters have increased their safrinha estimates recently with the latest one showing a 5 percent increase over last year. The USDA’s latest estimate has Brazil’s total corn production at 101 mmt.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at firstname.lastname@example.org. 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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