Apr 17 – Updating Soybean Crush, Canola Prices, & Ethanol

Grain markets this morning are mostly green as strong U.S. soybean crush data and disrupted trade flows continue to drive the complex.

“I tried to draw people more realistically, but the figure I neglected to update was myself.” – Joe Sacco (American-Maltese cartoonist)

Updating Soybean Crush, Canola Prices, & Ethanol

Grain markets this morning are mostly green as strong U.S. soybean crush data and disrupted trade flows continue to drive the complex.
Yesterday’s U.S. jobless claims report showed us that more than 22M Americans have lost their jobs in the last month, or the equivalent of nearly 15% of the entire American workforce. [1] With millions out of a job, and trillions of dollars in stimulus dollars being handed out, is the money going to the people who are going to spend it? Chamath Palihapitiya from Social Capital pointed out yesterday that less than 3¢ out of every stimulus dollars put out by the U.S. government actually has gone to Americans. [2]
Sounds a bit similar to the portion of dollars spent on food that actually goes to the farm, no? From where I’m sitting, there continues to be a major mismatch of resource allocation, be it at the government level or within the private markets. I covered the supply chain issues last week and granted, this supply/demand confusion is somewhat expected. However, we’ve been in a state of COVID-19 lockdown for over a month in most places now…shouldn’t we have some of this figured out? Why haven’t there been new food security councils created amongst players within the food industry?
Obviously, the answer is more complicated that just a snap of the fingers. We can’t just move all the demand from the hospitality/food services line item to the retail line item overnight. [3] Rabobank has done some interesting analysis, calculating that for every 10% drop in food services demand, retail demand only goes up about 3%! Quite clearly, we know that it’s not an exact trade-off of shifting supplies from one column to the other.
That said, the U.S. government is looking to buy foodstuffs as part of the $15.5B USD in agricultural industry aid announced earlier this week. [4] More specifically, Ag Secretary Sonny Purdue said on Wednesday, “We want to purchase as much of this milk, or other protein products, hams and pork products, and move them into where they can be utilized in our food banks, or possibly even into international humanitarian aid.”
Nothing similar has even been rumoured from the Canadian government. Accordingly, Manitoba’s farmers association, KAP, made calls this week for the Canadian government to step and provide a better playbook for the country’s food security. [5] Further, the Canadian agricultural industry and government should be asking how they can ensure taking advantage of a potential export boom of foodstuffs as other countries move to more protectionist policies/food export quotas. [6]

U.S. Ethanol vs Brazilian Corn

Ethanol production in the U.S. last week hit a record low volume of just 570,000 barrels per day. [7] This is down 44% year-over-year and 15% from the previous all-time low, which was set just the week before! Unsurprisingly, ethanol stocks in the U.S. climbed to another new record of just under 27.5M barrels. We also know that with U.S. ethanol facilities slowing down production, this is putting some serious negative pressure on corn prices. Further, there’s been an obvious reduction in DDG output, which is having its own negative impact on feedstuffs for livestock operations. [8]
In line with this, we continue to see strong demand for feedstuffs on our Combyne cash grain marketplace for not only old crop, but also new crop. Regardless of selling or buying, post your Listing on the 100% free Combyne cash grain marketplace and let the market come to you! P.S. We just added a hay and straw component to Combyne marketplace, so if you’re looking to sell or buy forage products, Combyne has you covered there too!
Post your deal publicly on the Combyne cash grain marketplace
Looking south, CONAB is a bit concerned that weaker U.S. corn prices will increase competition on the export front with Brazil. Currently, Brazilian corn prices (and that of many other ag commodities) are at record highs, thanks to the significant depreciation of the Brazilian Real currency. [9] Considering that Brazil sets the tone these days for global corn exports, this is a pretty significant and credible warning from their version of the USDA. [10] It’s also probably a good news for U.S. corn demand when it really need some. That said, corn exports sales last week came in just under 970,000 MT, in line with expectations. However, soybean exports were week with just under 305,000 contracted versus the 750,000 to 1.55 MMT expected.

Canola, Soybean Crush Vs Demand

Statistics Canada said last week that February canola crush in Canada dropped nearly 5% compared to January, but it was still up 28% year-over-year. [11] Usually there’s a downturn in canola crush in February anyways, but there are concerns that with less demand for cooking oils (i.e. canola oil) from the hospitality industry, March canola crush volumes could also head lower yet. That said, canola prices have rallied well over the past month, but from a seasonality standpoint, we’re probably going to see some downside soon. Put another way, if you’re not looking to lock in today’s canola prices, your next opportunity may be in late May / early June when weather premiums show up (that is, if they show up).
U.S. soybean crush is having some impact on Canadian canola prices
This is where someone usually says to themselves, “Hey Brennan you dummy, there’s a million tonnes of canola that still hasn’t been combined yet from the fall in Western Canada.” [12] Yeah, don’t I know that already – my family has some still out! The reality, however, is that the market is already pricing in some of this remaining canola that’s yet to be harvested, and if anything, could be bearish if more of the seeds turn out to be a decent grade (canola seeds are pretty hardy and actually can winter pretty well!).
Speaking of March crush volumes though, yesterday we got NOPA soybean crush numbers for last month, showing 181.374M bushels of soybeans were used last month by members of the American processors association (or 4.94 MMT if converting bushels into metric tonnes). This is a huge number, crushing the pre-report estimate of 175.2M bushels and a new monthly record for soybean crush, beating the 176.94M bushels set just this past January. It’s also a 6.7% jump over last March’s soybean crush!
Thus far in the 2019/20 crop year, U.S. soybean crush is sitting 2.1% above last year, leading to expectations that the USDA will raise their full-year guidance by 10 – 25M bushels in the May WASDE report, out on Tuesday, May 12th. [13] A reminder that in this WASDE report, the USDA will share their first global estimates of supply and demand for the 2020/21 crop year.

Soybean Crush in China Coming Up Short

Looking across the Pacific, there the soybean crush market in China is teetering a bit due to shortage of soybeans to crush. [14] Accordingly, on Wednesday, China’s soybean futures rallied to a new 2.5-year high to just under $20 USD/bushel as soybean supplies have tightened in the country. [15] With about 6.9 MMT of soybean imports expected by CoFeed in April, it’s likely that the supply shortage for soybean crush will continue, meaning some soybean crush facilities may have to idle. That said, Safras & Mercado is estimating that Brazil’s soybean exports in April will top 13.5 MMT, which would eclipse the record of 13.3 MMT that was literally set just last month in March. [16]
Ironically, downstream demand for soybean crush by-products won’t be as strong as before COVID-19 hit the space. For example, Chinese restaurants are just slowly starting to open back up, meaning there’s a disconnect between all the meat being imported (which was originally planned to be brought in for the Lunar New Year holidays), and who’s going to consume it. In March alone, total pork imports by China almost tripled compared to a year ago, but with demand down, prices have weakened a bit. [17] Probably nowhere is this more reflected that in the beef market, with Chinese importers buying about 30% of what it used to from South America, according to one trader from a state-owned buyer. [18]
That said, UBS economist Tao Wang is forecasting that total China imports will drop 20% year-over-year in 2Q2020 and will be down 12% for the 2020 calendar year. [19] On that note, we now know that China’s economy shrank by nearly 6% in 1Q2020. [20] The amazing datapoint underlying this Chinese GDP print is that it’s the first time since 1976 that the Chinese economy has contracted! While the same economic contraction is expected in every country around the globe, every single one of those countries should be putting the blame on China as it was their lack of accountability in handling the COVID-19 situation proactively. Intuitively, the calls for boycotting “Made in China” products are starting to get louder. [21]
Have a great weekend!
To growth,
Brennan Turner
TF: 1-855-332-7653
@Combyne on Twitter
At 8:25 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.4063 CAD, $1 CAD = $0.7111 USD)
May Corn: +1.5¢ (+0.45%) at $3.213 USD or $4.518 CAD
May Soybeans: +3.5¢ (+0.4%) to $8.403 USD or $11.816 CAD
May Soybean Meal (per short ton): +$1.60 (+0.55%) to $293.40 USD or $412.60 CAD
May Soybean Oil (cents per lbs): +0.90¢ (+0.35%) to 26.39¢ USD or 37.11¢ CAD
May Oats: -1.5¢ (-0.5%) to $2.878 USD or $4.047 CAD
May Wheat (Chicago): -1.5¢ (-0.25%) to $5.285 USD or $7.432 CAD
May Wheat (Kansas City): +1.8¢ (+0.35%) at $4.718 USD or $6.634 CAD
May Wheat (Minneapolis): +0.8¢ (+0.15%) to $5.07 USD or $7.13 CAD
May Canola: +3.4¢ (+0.6%) to $10.414/bu / $459.20/MT CAD or $7.406/bu / $326.54/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.

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