July 15 – US Corn Exports Get Boost, But Rains Prevail

Grain markets are mostly higher this morning and, despite record US corn exports buying by China, rain events are putting corn prices in the red.

“Truth is mighty and will prevail. There is nothing wrong with this, except that it ain’t so.” – Mark Twain (American author)

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US Corn Exports Get Boost, But Rains Prevail

Grain markets are mostly higher this morning and, despite record US corn exports buying by China, rain events are putting corn prices in the red. The rains are welcome though as the recent heat downgraded good-to-excellent (G/E) ratings of both corn and soybeans by 2 and 3 points respectively, week-over-week. [enter final] That said, the headlines may suggest that it’s worse than it really is for corn and soybeans, as the last week’s Drought Monitor map shows the real dry areas are in the Southern Plains and the West Coast.

US Drought Monitor map through July 9, 2020

Later today, we’ll get the NOPA soybean crush report, which is expected to show a new record amount of beans were used in June. Ahead of the report, traders are expecting to see 162.17M bushels of soybeans processed in June amongst NOPA members. IF realized, this would be a new best for the month of June and a 9% jump over June 2019’s crush volumes.

On the macro side of things, despite U.S. stock markets continuing to tick higher, recessionary expectations are building amongst the Wall Street elite. [1] Wells Fargo, JP Morgan Chase, and Citigroup set aside $28 Billion last calendar quarter to offset the loans that they hold that they think will go bad, a level not seen since the worst quarter of the financial crisis in 4Q2008. Put another way, these banks are already acknowledging what I’ve been saying all along in that there’s a massive “debt tsunami” (as Bloomberg put it) coming.

Quite simply, the government bailout money only kicks the can down the road on all the debt obligations that have to be satisfied. The big difference is, I don’t think it’ll be just one wave, but it’ll first start in businesses, something we’re already seeing, led by a large amount of bankruptcies and/or outright business closures. [2]

Nowhere is this financial hit more felt than in the retail & food services industries, with Yelp estimating 53% of restaurants closed on its system will never re-open. [3] In these 2 worlds alone, that’s a lot of workers and income lost. Similarly, the $600/week lifeline that millions of people have been getting will soon run out and while it might’ve been a great summer of getting paid to not work, the music is about to end and there’s not a lot of chairs for everybody. [4]

US Corn Exports Get Record Boost

Corn prices in Chicago continue to trade near multi-week lows as current forecasts and rain that’s fallen is a saving grace for many fields hit by some hot, dry weather lately. [5] While individually, the rains look like a million dollar rain, the rain last week and this week is likely worth a couple billion bushels of corn. That said, there is some more heat in the forecast and any temperatures above 95 degrees F can put significant stress on a corn crop that hasn’t been getting average moisture.

Yesterday, grain markets held its collective breath for a hot second as China bought a new record amount US corn exports, eclipsing the previous one-day purchase record set in December 1994. [5] While I mentioned that previous record in Monday’s Breakfast Brief, the 1.762 MMT of US corn exports bought by China yesterday (or 69.4M bushels if converting metric tonnes into bushels) will help meet the total crop year demand targets set out by the USDA in the  July WASDE.

Thinking of old crop for second though, through last Thursday’s report from the USDA, 2019/20 US corn exports have totaled just under 35 MMT (or 1.38 Billion bushels). This is still nearly 20% below sailings made through Week 44 of the 2018/19 crop year. It seems more than likely that 2019/20 US corn exports will finish below their 5-year average.

2019/20 cumulative US corn exports through Week 44

Accordingly, despite the record-setting demand for US corn exports by China, corn prices in Chicago still ended the day lower by about 3 cents! [6] This is largely because, traders know that this one-off purchase by China doesn’t exactly suggest a trend and that they’re slowly moving the needle to determine what will make the U.S. government happier. How this appears to me is somewhat like a child, walking further and further away from their parents, testing to see how much they can get away with before being scolded. While these large purchases are welcome, the market understands that they’re one-offs and trust in China being a reliably consistent buyer of US corn exports (or other commodities) is quite low.

What, Where Else is China Buying?

That said, China did import a record number of raw materials in June, as commodities bought in the annals of the spring-time spread of COVID-19 around the world started to arrive. [7] Crude oil imports hit an all-time high, while June imports of iron ore were the highest one-month total in nearly 3 years. For grain markets, the datapoint that stood out was the 11.16 MMT of soybeans that China imports in June, up 71% from the 6.5 MMT imported in June 2019 and 19% from the 9.4 MMT imported in May 2020. [8]

More importantly though, about 85% of said imported soybeans came from Brazil, who reported a record number soybean exports themselves. More specifically, Brazil exported 13.8 MMT of soybeans in June, 70%, or 9.66 MMT of which went to China. [9] Thus, with Brazilian soybean supplies tightening a bit, domestic soybean prices there are starting to climb. [10] Therein, it’s not surprise that Datagro is reporting that 91% of 2019/20 soybeans have been contracted by farmers (vs 76% average), and 36% of the 2020/21 soybean crop (which will be planted in late September), which is nearly triple the average.

If we look at some other commodities, Canadian barley exports to China have started to pick up, thanks to the 80.5% tariff that Beijing put on Australian barley exports. [11] With one month left in the 2019/20 crop year, Canadian barley exports are tracking 4% behind last year’s ace with just over 2 MMT sailed. There’s been a notable shift of buying interest for Canadian barley, and it’s bittersweet as, while the demand is certainly appreciated, we’re culpable to China going through trading partners like Michael Jordan goes through cigars (6 a day!). [12]

2019/20 cumulative Canadian barley exports through Week 48

For example, China has recently approved more rapeseed processing companies in the Black Sea, especially Ukraine, to export product back to the People’s Republic. [13] This can be interpreted as diversifying their commodity supply chains, but knowing that Ukraine can produce more rapeseed than it currently does, what to stop them from buying rapeseed from the Black Sea? Freight costs is one element, but at the same time, economics have rarely got in the way of the long-term game that China wants to play, which is all about power and control. [14]

Therein, I’m glad to see the White House pass a bill removing Hong Kong’s special trading status with the U.S., albeit a response is expected from Beijing. [15] Further, nearly 70 Canadian politicians have signed their name on a letter to Prime Minister Trudeau calling for sanctions on China for human rights abuses. [16] As with politics though, the headlines and issues that stick around are only the ones that are controversial and its yet to be seen if these international trade issues are more important than whether Conservative leader Andrew Scheer wears a mask, the record debt Canada has accumulated, or even the record third ethics investigation into the Canadian Prime Minister! [17]

To growth,

Brennan Turner
TF: 1-855-332-7653
@Combyne or @FarmLead 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 = $1.3564 CAD, $1 CAD = $0.7373 USD)

Sept Corn: -2¢ (-0.6%) at $3.24 USD or $4.395 CAD
Aug Soybeans: +2¢ (+0.25%) at $8.80 USD or $11.936 CAD
Aug Soybean Meal (per short ton): +$0.10 (+0.05%) to $285.30 USD or $386.98 CAD
Aug Soybean Oil (cents per lbs): +0.22¢ (+0.75%) to 28.68¢ USD or 38.90¢ CAD
Sept Oats: unchanged at $2.71 USD or $3.676 CAD
Sept Wheat (Chicago): +2¢ (+0.4%) to $5.288 USD or $7.172 CAD
Sept Wheat (Kansas City): +2¢ (+0.45%) at $4.443 USD or $6.026 CAD
Sept Wheat (Minneapolis): +1.3¢ (+0.25%) to $5.20 USD or $7.053 CAD
Nov Canola: +2.7¢ (+0.25%) at $10.759/bu / $474.40/MT CAD or $7.932/bu / $349.75/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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