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Corn demand struggles

By Staff | Apr 8, 2020

Congress has reached an agreement on a stimulus package of close to $2 trillion in relief. This is to help offset economic losses for U.S. consumers and business owners. To help boost the economy, the Federal Reserve announced they’d also be offering a $4 trillion stimulus. The market is expecting to see an announcement on a potential MFP payment by the USDA sometime after spring planting completion, as well as a potential aid program for cattle. China also announced their own economic relief package amounting to close to $7 trillion.

Bullish news out of the USDA as they confirmed a nearly 30 million-bushel sale of corn to China for 19/20, the largest since 2013. This left the trade asking if this was a sign of recovery in China, a chance to buy grain 50 cents cheaper than a few weeks ago or concerns that South America may not be a reliable supply amid COVID-19?

Bullishness in soybeans continued as a sale to an unknown, assumed China, of 4 million bushels. More concerns that dry weather harmed the South American crop more than anticipated. That coupled with annual labor strikes at South America ports, Argentine processor financial woes and some supply issues with COVID-19. Rumors in the U.S. domestic meal market about possible boosts to demand from the slowing ethanol industry reducing DDG supplies into the protein market.

Low gas prices together with the lower ethanol demand has caused ethanol plants to slow or halt their grinds. This is all due to the price war going on between Russia and Saudi Arabia, as well as limited travelling due to the coronavirus. Poet, the nation’s largest ethanol producer, announced this week they’d suspend buying corn at several locations as well as other ethanol producers following suit. Out of Poet’s 27 plants across the country, 7 plants have suspended buying, with 3 located in Minnesota, 2 in Iowa and 2 in South Dakota. Corn basis continues to widen as more and more news of ethanol plants shutting down or drastically reducing production. Many plants have moved their spring and summer shut down periods for maintenance forward and extended them for longer period as ethanol crush margins are in the red by 35 cents. Gasoline futures on Monday dropped to their lowest level in 20 years. By the end of this week, 2 billion gallons of annual ethanol capacity could be idled.

U.S. corn into China is now closely priced with offerings out of Ukraine. An unknown sale was reported Wednesday and many speculate it was China, which helped support values. Some analysts are expecting China to buy 80 million bushels of U.S. corn and others believe that number could be larger. While these purchases are welcomed, they will do little to offset the expected decreases in corn ethanol demand.

Imports of U.S. distillers’ grains by China would be welcomed news for the struggling ethanol sector. Rumors of Chinese interest in U.S. DDG’s circulated at the time of the signing of the trade deal and some analysts still believe this could become a possibility. Sources state that the anti-dumping duties are the limiting factor in these sales. The same sources stated that the paperwork to remove the duties are being processed.

For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at kguse@maxyieldgrain.com. 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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