Aug 30 – How Long Can China Last Without U.S. Soybeans, Pork?

August trading is coming to an end and it was a tumultuous month for grain markets with China, weather, and crop conditions owning the headlines.

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How Long Can China Last Without U.S. Soybeans, Pork?

August trading is coming to an end and it was a tumultuous month for grain markets with China, weather, and crop conditions owning the headlines. To start the last day of trading, grain markets are mostly in the green but it’s unlikely to make up for a month that’s been mostly tracking lower. In fact, corn prices are likely to have their biggest monthly decline since 2015!

Wheat Prices Looking for Something, Anything

U.S. export sales data yesterday was negative for soybean exports but positive for new crop corn exports and wheat exports. For the latter, a marketing-year high of nearly 662,000 were sold last week. Actual shipments of American wheat are tracking nearly 40% higher year-over-year as competition for wheat in the international market remains firm.

2019/20 U.S. total wheat exports through week 12

That said, Chicago wheat prices are pulling back hard this morning as the spread against its main competitors has gotten a bit too wide. Soft red winter wheat prices have enjoyed a luxurious premium over HRW wheat (traded on Kansas City futures board) mainly because there’s very little milling quality SRW in the market. Further, corn prices hit some new lows last week, making it more attractive for feedstuffs buyers to put more corn back into their livestock rations.

Despite some strong exports so far in 2019/20 crop year, a strong U.S. Dollar is also weighing on wheat prices. Needless to say, wheat prices need some support but the complex isn’t going to simpler as we move into the fall, according to Louis Gartner of Spectrum Commodities. [1] One of the things that I’ve continuously pointed to over the past few months that could help wheat prices is drought conditions in Australia. Unsurprisingly, the Australian Bureau of Meteorology released an updated three-month forecast, and it’s expected that drought conditions will continue to persist. [2]

Drought conditions ares expected to persist from September thru November 2019 in Australia

Corn Harvest 2019 and Ethanol 2020

In last Friday’s FarmLead Breakfast Brief, while digging into the corn and soybean yields from the ProFarmer crop tour, I also discussed some of the frustration the U.S. ag industry is directing towards the White House regarding ethanol waivers. To help temper their disappointment, President Trump ordered a boost to the 2020 ethanol mandate by 500 million barrels and the biodiesel mandate by 250 million barrels. [3] Despite this, in addition to an Indiana POET ethanol plant, another plant in Minnesota is shutting down due to thin exports and low prices. [4] President Trump shared yesterday that he and his team are planning to announce a “giant package” that would make ethanol processors and corn farmers happy, but no details have been shared yet. [5]

Thinking more politically, Democratic presidential candidates are looking to capitalize in the Midwest on the poor handling of the ethanol policy by President Trump. [6] On a related forward-looking note, Farm Futures first survey of 1,150 U.S. farmers pegs 2020 corn acres at 94.1M, soybeans at 83.6M, and all wheat at 32.1M. [7]

Bringing it back to this year’s harvest, Gro Intelligence recently weighed in and, compared to the ProFarmer crop tour, they’re less optimistic about the Eastern Corn Belt, but more hopeful for bigger corn yields in the west. [8] However, what’s certain is that the delayed U.S. corn crop has a ways to go from its immature state to black layer. [9]

Through the Midwest, forecasters are expecting to see lows in the 50s and highs in the 70s through the weekend, before staying in the 70s next week. The cooler temperatures could keep plants from maturing, which is significant, given quite a few crops were planted late to begin with and are trying to catch up in terms of development. [10] Between this and some lower temperatures in the two-week forecast, it’s likely that one should prepare for taking off some wetter crops this fall. [11] The silver lining is that natural gas prices are at their lowest levels in 3 years.

Natural gas prices are at three-year lows

China & U.S. Soybean Exports t: Dying or Trying?

Exactly a month ago, I talked about the possibility of upside for U.S. soybean exports to China. Thanks to the brief trade war truce in July, we know that China imported three times as many soybeans from the United States in July than they did back in July 2018. [12] With nearly 912,000 MT of U.S. soybean exports landed in China, that’s also up nearly 50% from June’s numbers. Keep in mind, however, that China imported 6.42 MMT of soybeans from Brazil, which is down 9% year-over-year but 17% better than June’s shipments of 5.5 MMT. Cumulatively, U.S. exports

Karen Braun of Reuters notes that even new crop sales of corn and soybean exports are struggling. [13] Specific to sales for soybean exports, bookings through August 15th were sitting at a 13-year low with just 5.26 MMT contracted. That’s nearly 60% behind the same point a year ago and the five-year average. China has bought only 260,000 MT of those cargoes, or about 5% of total sales. Comparably, before the trade war started, Braun notes that, at this time of year, about half of new crop soybean exports sales were attributed to the People’s Republic. Worth noting is that, as we end the 2018/19 crop year tomorrow, through week 51, total U.S. soybean exports for the season is tracking nearly 20% below the 2017/18 pace.

Without China, U.S. soybean exports are likely to finish 2018/19 20% behind the previous year's shipments

It might not all be for naught though according to ClipperData as they think August could be a month that swings even higher for soybean exports to China! [14] Based on their estimates, total August soybean imports by China could come in near 10 MMT. As I mentioned yesterday morning on TD Ameritrade Network, since the Chinese have been buying a lot of Brazilian soybean exports (thanks to the trade war), the country is starting to run a bit short of available supplies to ship out. [15]

If China buys the same amount that they did from Brazil in the September to January period, ClipperData says China is going to about 12 – 14 MMT short. Obviously, U.S. soybean exports make the most sense to fill that gap since Brazilian soybeans don’t start coming off until early January. While China has suggested that they have a ban of all U.S. ag products, it’s not exactly clear that this has materialized. Last week, China bought nearly 1,900 MT of pork, up from 220 MT the week before.

The fact is, China is dealing with some serious food price inflation, including pork prices jumping 18% in just the past 2 weeks, according to the Wall Street Journal! [16] Importing more ag products is the only way to slow down said food price inflation in a fragile economy where consumers are pretty price-sensitive.

Add in this theory of more U.S. soybean exports to China with the delayed development in the U.S. soybean crop and some cooler temperatures in the two-week forecast for the Corn Belt, there’s a bit of a bullish scenario that might be setting up for soybean prices. [17] As Ray Grabanski of Progressive Ag Marketing reminded us this week, low prices tend to cure low prices and we’re at the seasonal time of the crop marketing year (read: Harvest 2019 is starting!) that things start to trend higher. [18] Just a word of caution though: don’t expect weekly 5% moves, let alone daily bumps of that nature!

Have a great weekend!

To growth,

Brennan Turner
CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead on Twitter

At 7:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3284 
CAD, $1 CAD = $0.7528 USD)

Dec Corn: +2¢ (+0.55%) to $3.733 USD or $4.958 CAD
Nov Soybeans: +5¢ (+0.7%) to $8.745 USD or $11.617 CAD
Oct Soybean Meal (per short ton): +$0.20 (+0.05%) to $294.50 USD or $391.21 CAD
Oct Soybean Oil (cents per lbs): +10¢ (+0.35%) to 28.47¢ USD or 37.82¢ CAD  
Dec Oats: unchanged at $2.703 USD or $3.59 CAD
Dec Wheat (Chicago): -6.3¢ (-1.3%) to $4.665 USD or $6.197 CAD
Dec Wheat (Kansas City): -0.3¢ (-0.05%) to $4.013 USD or $5.33 CAD 

Dec Wheat (Minneapolis): unchanged at $5.015 USD or $6.662 CAD
Nov Canola: +3.9¢ (+0.4%) to $10.188/bu / $449.20/MT CAD or $7.669/bu / $338.16/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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