July 31 – Record Soybean Harvest in Brazil to Compete With (Again)

Grain markets are in the green as corn and soybean harvest 2020 potential gets pit against domestic and export demand potential

“When you are content to be simply yourself and don’t compare or compete, everybody will respect you.” – Lao Tzu (ancient Chinese philosopher)

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Record Soybean Harvest in Brazil to Compete With (Again)

Grain markets are in the green as corn and soybean harvest 2020 potential gets pit against domestic and export demand potential. Yesterday, China booked their largest one-day purchase of U.S. corn, buying 1.937 MMT, or 175M bushels more than the previous record that they set in another purchase just two weeks ago. [1] They also bought 1.925 MMT of soybean exports, the largest one-week purchase since November 2016! The extra purchasing is certainly appreciated but will it continue? Also, due to a heavy schedule today, the FarmLead Breakfast Brief today is a little shorter than usual.

On the macroeconomic side of things, we got some intense economic activity reports for 2Q2020, with the U.S., Mexico, and the Eurozone all have historical contractions in their GDP. In the U.S., the GDP fell 33% (which was actually better than the 35% expected), but some healthy math I saw yesterday posited that, arguably, about 2/3s of last quarters economic activity could be traced back to the $3 Trillion in US government stimulus money. [2] In Mexico, GDP dropped 17.3% – a new record – and the fifth consecutive quarter of economic contraction. [3]

And finally, in the EU, GDP fell 40% but investors seem to be unfazed as the bloc is handling the COVID-19 containment better than the U.S. [4] On the flipside, factory activity in China grew for the 5th straight month and beat analyst expectations but concerns of a few challenging, upcoming months is growing as flooding in the central part of China expands. [5] (I talked about the Three Gorges Dam in Wednesday’s Breakfast Brief, in addition to the declining U.S. Dollar and durum prices.)

Another Big Soybean Harvest in Brazil?

As we flip the calendar into August tomorrow, that officially means that we’re a month and a half away from the Plant2020 campaign for Brazilian farmers. A poll of analysts by Reuters suggests that the 2020 soybean harvest in Brazil should climb to 130 MMT, up about 10 MMT or 8% year-over-year. [6] That’s slightly below the current official expectation from the USDA, who, in their July WASDE, suggested the 2020 Brazilian soybean harvest would be 1 MMT higher at 131 MMT. Datagro is one of the highest estimates at 131.7 MMT, while Rabobank has one of the lowest at 127.3 MMT. Regardless, we’re talking another record soybean harvest in Brazil in 2020.

In a Breakfast Brief from a month ago, I talked about how we would only have China to thank for improving soybean prices, However, if you read Monday’s Breakfast Brief, (in addition to explosive lentil exports) you’d also know that China’s demand for the U.S. soybean harvest soured in July with only about 270,000 imported in June. With Brazil’s soybean harvest acreage expanding for good reasons and by as much as 4% to the highest area in 6 years, China is likely looking at South America, not North America, for more of its sourcing options. [7]

Let’s be real: China needs to see “explosive” buying to meet the Phase One trade deal terms and they don’t seem super eager to do it. [8] On the flipside, Brazilian farmers could make record profits  – $3.45 USD/bushel as estimated by the IMEA – on their 2020/21 soybean harvest, as well as other crops because of the currency effects. [9]

Granted, Chinese importers have bought more than $2.5B worth of U.S. soybean in the last 2 months, it’s tough to say that trend will continue, especially since they know what volumes will be coming from the Brazilian soybean harvest, come January 2021. That said, China continues to battle the containment of the African Swine Fever as well as the fact that the flooding situation from the Three Gorges Dam slowed soybean crush volumes to the smallest in a month.

Overall, tensions continue to rise between Beijing and Washington, and Brazil seems to be caught in the middle as it relates to trade activity. More specifically, the U.S. wants Brazil to ban Hauwei from 5G access in the country, warning the South American country of “consequences” if they don’t. [10] Thus, it seems that the U.S. is working on building up its IP and IT allies against China, but that doesn’t necessarily mean raw commodity trade will change!

Have a great long weekend!

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne or @FarmLead on Twitter

At 7:45 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3424 CAD, $1 CAD = $0.745 USD)

Sept Corn: -0.3¢ (-0.1%) to $3.155 USD or $4.235 CAD
Sept Soybeans: +3.5¢ (+0.4%) to $8.903 USD or $11.95 CAD
Sept Soybean Meal (per short ton): +$1.30 (+0.45%) to $293.80 USD or $394.39 CAD
Sept Soybean Oil (cents per lbs): +0.13¢ (+0.45%) to 30.02¢ USD or 40.30¢ CAD
Sept Oats: +0.3¢ (+0.1%) to $2.783 USD or $3.735 CAD
Sept Wheat (Chicago): +1.5¢ (+0.3%) to $5.31 USD or $7.128 CAD
Sept Wheat (Kansas City):+2.3¢ (+0.5%) at $4.423 USD or $5.937 CAD
Sept Wheat (Minneapolis): +0.8¢ (+0.15%) to $5.138 USD or $6.896 CAD
Nov Canola: +0.2¢ (+0.02%) at $11.115/bu / $490.10/MT CAD or $8.28/bu / $365.10/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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