Closing Comments; Wednesday, January 22nd, 2020
Agrivisor - SETZ - Wed Jan 22, 2:27PM CST

Futures were firm to start today’s session as light buying surfaced in the grain and soybean complex. Wheat remains the leader of the grain complex but is starting to show signs of being over-extended to the upside. Conversely, corn and soybeans are starting to lean towards oversold, but are struggling to find fresh buying interest. It appears as though the market is starting to consolidate and wait for the next fresh batch of fundamental news to extend positions, which may be weeks away. This caused futures to slip lower late in the session.

One of the bigger fundamental stories right now is the start of the South American harvest season. Soybean harvest is underway in Brazil and yields are coming in much better than expected to start. Just as much interest is on harvest pace though, as progress is behind normal, which could limit the window for the planting of the Safrinha crop. Trade is also monitoring soil moisture in Brazil, with Mato Grasso only seeing 57% of normal precipitation recently. This state produces 42% of Brazil’s Safrinha crop so any decrease in plantings will have a major impact on total production.

As the Brazilian harvest ramps up, so will the pressure on the global soybean market. Asian buyers are reportedly covered on needs for the next several weeks and will wait to see how far futures set-back before extending coverage. Brazilian farmers and exporters have been active sellers to capture as much Asian business as they can prior to US and China enacting Phase 1 purchases which has further pressured futures. To see this pressure on the complex last for another month or two would not be surprising.

While the US may not see exports of whole soybeans in the near future, it could easily see elevated demand for soy meal. Many Argentine crushers are facing economic issues and are struggling to satisfy demand as production has been slowed or idled altogether. As a result, buyers have started to surface for US meal, and surprisingly pushed our sales above Argentina in recent weeks. Even with higher values we have seen buyers surface for US meal as the higher protein content compared to Argentina’s can negate the price differential. Typically, Argentina is the world’s leading soy meal provider.

Not all countries are pleased with the trade resolution agreement between the US and China. Their belief is it will give the US an unfair advantage over other sources on commodity trade. One of the most vocal is the EU, who claims they could lose up to $11 billion in trade because of the agreement. Chinese officials have released a statement that they will not change their import habits though, and they will continue to source commodities from all suppliers. China has further stated that their buyers do not need to make the US a priority when it comes to import purchases.

The United States is starting to have some logistic issues with the Mississippi River. Recent rains have elevated water levels on parts of the Mississippi, especially in lower regions. This is limiting barge movement and causing slower delivery times of commodities. Export demand from the Gulf has been light in recent weeks though, so delays have not yet had an impact on bids.

Russia and China are starting to open trade on beef. Last week China announced it would be allowing beef imports from Russia. The immediate reaction to this news was it is being done to provide relief from tight meat supplies following the outbreak of African Swine Fever in Asia. While this may be a partial factor, both countries have been working on beef trade for the past several years. Trade officials from both sides are now looking at opening pork trade as well.

The Lunar New Year celebration in China starts Saturday, and ahead of this, the country has again released frozen pork from government reserves. Typically, the demand for pork spikes considerably during this event. The Chinese government has released another 20,000 metric tons of pork from storage, bringing the total released since December to 200,000 metric tons. While this is satisfying immediate demand, it is creating and even greater deficit that will need to be replenished.

This commentary is the sole opinion of Karl Setzer, Senior Commodity Risk Analyst for AgriVisor, LLC. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to send an e-mail to ksetzer@agrivisor.com.




 

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Karl Setzer Grain Commentary