Turmoil in the markets
The coronavirus continues to gain traction and move markets. Airplanes are sitting empty with 96% commercial airplanes being grounded. This is creating a large demand for trucks to pull the freight over the road, supporting the biodiesel industry. In macro markets, the coronavirus is now in 192 out of 195 countries. Creating partial or total economic shutdowns globally.
Food consumption overall is down. The saying “people still have to eat,” is true but slightly misleading. Studies show that when people eat out, they eat larger portions and more meat. Globally, there is starting to be a shift from protein to starches. However, the largest hit to agriculture markets is in ethanol demand.
Poet, the world’s largest ethanol producer, will suspend production in two of its facilities. They have already dialed back production in multiple other plants. Poet also plans on delaying the opening of a new ethanol plant in Indiana. The plant was to produce up to 80 million gallons of ethanol and grind 28 million bushels of corn yearly. Poet follows a string of other ethanol plants in the industry; either suspending production or decreasing production due to the current market environment.
The April World Agricultural Supply and Demand report brought some insightful information to the corn and soybean markets. Corn ending stocks came in at 2.092 billion, 100 million bushels above the average trade estimate. Corn feed usage increased 150 million bushels to 5.675 billion bushels, this could be attributed to market conditions and DDG supplies drying up. Not surprising, ethanol demand was cut by 350 million bushels to just over 5 billion.
Soybean ending stocks are pinned at 480 million bushels, slightly above the average trade estimate of 444 million bushels. Bean crush was up 20 million bushels, at 2.125 billion bushels. However, exports are down 50 million bushels at 1.775 billion bushels. At his point in the marketing year, soybeans exports are still far below the needed levels to hit the USDA’s target.
The Brazilian soybean production estimate was reduced to 124.5 million metric tons, slightly above trade estimates. Corn was in line with the March report at 101 million metric tons. The reduction to soybeans is due to ongoing drought conditions in Brazil, specifically in the South. In addition, the Brazilian REAL has been depreciating to record levels to the U.S. dollar. This puts the United States in a tough position to compete now and in the future for export business. For example, Brazilian farmers are getting paid more for their grain, and have every incentive to increase acres. Also, the Chinese Yuan can buy more REAL versus the American dollar, another incentive. China has been buying soybeans cargoes aggressively from Brazil into June/July.
This gives little hope for exports to pick up until after the 19/20 marketing year.
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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