Closing Comments; Tuesday, January 28th, 2020
Agrivisor - SETZ - Tue Jan 28, 2:00PM CST

The spread and impact of the Coronavirus in China was again a primary factor in today’s trade. This was especially the case for soybeans where demand is starting to be questioned on the entire oilseed complex. China is now reporting just over 4,500 cases and 106 deaths from the virus and has started to cancel Lunar New Year celebrations to help prevent its spread. Soybeans were further pressured today by building harvest pressure from South America. Wheat was defensive today on elevated production estimates for the global market. Corn managed to rebound today as another flash sale was announced with Mexico booking 124,355 metric tons for delivery during this marketing year.

So far, the most reaction to the Coronavirus has been in the oilseed market, which is not surprising as China is the world’s leading importer of oilseeds. This caused sharp losses in soybeans yesterday, but given the fact the contract is already oversold, futures rebounded late in the day. Soybeans were again weaker today, but losses were considerably less. Palm oil was under sharp losses though with a 10% decline in value. This pressure capped the global oilseed market, keeping soybeans negative.

As harvest starts to ramp up in Brazil, so does the country’s export line up. Last week Brazil loaded out a reported 137,000 metric tons of soybeans. While this was down from the 426,000 MT of soybeans that were shipped during the same week a year ago, soybean harvest is also behind normal at just 4% complete. Exports will soon build though, with an already record export volume being forecast for February.

The United States has been waiting for Chinese demand to build following the recent trade agreement, but so far, fresh buying has been sparse. This is especially the case on wheat where buyers had been expecting sales to quickly ramp up. Instead, China has been buying larger volumes of wheat from Canada, France, and Australia. One reason for this is to satisfy WTO obligations, but also from the fact wheat is cheaper from those sources. China is still expected to buy US wheat, but likely not until the next US harvest when values decline.

Ukraine has also seen elevated demand for its grains in the global market. Compared to a year ago, Ukraine grain exports are up 29%. So far, the country has exported 15.6 million metric tons of wheat and 15.1 mmt of corn. The big gainer in exports is wheat with demand up 4.2 mmt from a year ago. This elevated wheat supply coming out of Ukraine is helping negate some of the losses in other sources, mainly Australia.

A topic in the market that is only expected to grow in its impact is the quality of the US corn supply. While high moisture is being reported, the greatest concern is from elevated levels of foreign material, or FM. A large amount of corn needed to be commercial dried this year which tends to make kernels more fragile, and prone to breaking. This then creates FM and fines that buyers are not willing to pay a premium for. That said, we have seen a rise in corn demand even with quality issues as importers have few other sources to choose from at this point.

The real concern with corn quality may be in front of us, however. Temperatures have been cold enough that fungus has not been able to grow. This will likely change once temperatures warm, especially with the moisture of corn being higher than average. Reports of stored corn taking on moisture after being dried is also a factor to contend with.

Even though the cattle on feed report showed a build in US cattle numbers, the US semi-annual cattle inventory report is expected to show a decrease in beef cattle. Analysts expect a 1% decrease in the US beef herd which would be the first decline in six years. This would leave the US with just over 31 million head of beef cattle.

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