Steps in the Right Direction at G20 Summit
News sources indicated that U.S. President Trump and Chinese President Xi have begun the process of settling trade differences on Friday, November 30th, at the G20 summit. The Chinese President indicated the country would buy a significant about of agricultural, industrial, energy and other products from the U.S. to offset trade imbalances. The U.S. has agreed not to raise tariffs on $200 billion of Chinese imports from 10% to 25% as was scheduled to take effect on January 1st.
Some of the hesitation over the expected purchases surrounds the fact that the tariffs are still in place. A 90-day period has been agreed to for working out a permanent solution to trade issues. While it is nearly impossible to regain all of the lost Chinese soybean business this year, the U.S. has gained some export business from other countries. It is estimated the U.S. will likely lose 30% of the previous year’s export business because of the trade war with China.
Looking at the bigger picture in the soybean complex, we can point a finger at multiple years of consistently good yields plus a very large increase in soybean acres in 2017 that have led to this ballooning carryout. When you throw tariffs on US soybean exports, this adds to an already ugly balance sheet. Questions are starting to surface whether there is still time to export a decent amount of soybeans before Brazil harvest takes place. Typically, January is where harvest activity will tend to pick up in Brazil.
While the majority of the agriculture news continues to surround US and China trade relations and the speculations of what outcomes it will bring. Much of the focus has been revolving around what the impacts will be for the soybean complex. However, corn, ethanol and pork could be the largest beneficiaries to a deal.
Current corn values, after freight, are competitive to values sold out of government reserves without tariffs. Even though the USDA made a large 5 billion bu increase to Chinese stocks in the November report, many speculate that reserves are much lower than what was published. One well followed firm estimated 3 billion bu. A trade agreement would make imports of US corn feasible to add to China’s reserves.
In early November, China announced plans to mandate 10% ethanol blended with gasoline by 2020, which would be an increase of 8%. Continuation of ethanol imports as well as DDG’s would be a great benefit to the struggling ethanol sector.
While all of these factors could lead to increased demand for corn, the spread of African Swine Fever has decreased the potential demand to a large degree. The disease has decimated herds and demand for feed products. However, imports of US pork could get a large boost to help satisfy China’s large pork demand
Last week’s EIA report showed ethanol production for the last week of November at 1.069 million barrels per day. This is up 21,000 barrels per day from the previous week. Stockpiles rose 100,000 barrels to 23.030 million barrels. Margins are said to have improved from the previous week but are still in the red for most plants.
Despite the negative stigma following ethanol margins lately, corn exports have been the shining star. Year to date export sales are roughly 16% ahead of last year, which translates to a 140 million bushel increase. With the recent flat price rally, farmers have been taking advantage of it by rewarding this market with sales. Corn basis has been doing a lot of the legwork to pry bushels out of farmer and commercial hands.
Corn export inspections, for the week ending November 29th, still remain ahead of the anticipated pace for the 2018/19 marketing year. Corn was reported around 40.7 million bushels, down about 5.7 million from the previous week. Nearly a quarter into the marketing year and corn inspections are almost double from the previous year. Soybeans were pegged 38.2 million bu, down almost 3 million bu from last week. Wheat came in at 17.3 million bushels, up almost 7 million from a week ago.
Export sales for the week ending November 29th were favorable for corn, soybeans and wheat. Corn sales totaled 46.4 million bushels, which was above the weekly total needed to meet the USDA’s target and trades expectations, but below last week. Soybean sales were at the high end of trades expectations at 32.7 million bu, which was above the needed amount and nearly 10 million bu higher than last week. Wheat sales were also near the high end of the estimates and the weekly total needed at 17.4 million bu.
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.