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Demand destruction continues

By Staff | Apr 29, 2020

An early spring storm brought up to 10 inches of snow to parts of the northern Corn Belt and Plains over the last weekend, bringing field work to a halt. The southern areas received heavy rains, also slowing progress. Near-term forecasts look colder than normal, offering little help for a quick return to fieldwork. The market has had little reaction to the situation, as the focus remains on the COVID-19 news and the demand destruction that it has caused.

Valero announced they will be idling 8 of their ethanol plants and plan to reduce production at their other 6 plants. Valero’s 14 ethanol plants have a combined production capacity of 1.73 billion gallons per year. It has not been specified which plants will be idled and which will reduce their production. U.S. corn usage for ethanol decreased to 57.7 million bushels as of the week ending April 10, which is almost half of what was used just six weeks ago.

The majority of the concerns of lost corn demand due to COVID-19 has been surrounding the ethanol industry. Recent developments are now raising concerns of what’s to come for the livestock sector. Several packing plants across the U.S. have had to shut down after numerous employees have come down with the virus. The disruption has led to large volumes of animals not being slaughtered, pressuring livestock markets. As a result, many livestock producers are trying to drastically slow production. This has analysts now questioning the impact on future feed demand.

Recently released figures show that China imported $5.05 billion worth of U.S. farm goods in the first quarter, 110% increase from last year. It is expected China would reach just over $20 billion on the year, short of the $36.5 billon agreed upon as part of the Phase 1 trade deal. China stated that they are working to fulfill their agreement, but the COVID-19 issue is impeding the process.

The National Oilseed Processors Association (NOPA) released their March soybean crush report recently. The total came in well above expectations at 181.4 million bushels. This was a new record by over 4 million bushels. Strong meal demand was noted as DDG’s have become difficult to source since the COVID-19 outbreak. Despite the favorable data, trades’ reaction was limited as concerns of lagging exports overshadowed the data.

The latest export inspections report indicated that soybean shipments are trailing the pace needed to reach the USDA’s target by 239 million bushels. U.S. soybean shipments tend to bottom out mid-April as most importers look to Brazil for needs. It is likely that U.S. shipments will increase after Brazil’s harvest is complete but most remain skeptical that the increase will be enough to catch up to the needed pace to reach the USDA’s forecast.

The need for risk premium in today’s market is still unjustified by many in trade as the focus continues to be surrounding the demand destruction created by the COVID-19 pandemic. The potential for a large South American corn crop is also limiting the need for risk premium. Combined Argentine and Brazilian production is forecasted at 152 MMT, 1 MMT below last year’s record crop. However, with Argentina, only 20% harvested and over two months left before the harvest of the safrinha crop. Weather could still impact crop output.

To see issues develop with Brazil’s safrinha crop this year would not be a huge surprise. A late start to planting this year, in less than ideal conditions could prove to have a negative effect on yield. As a result, a large portion of the crop will be maturing during the time of year that is typically dry and often hot.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. 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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