Closing Comments; Monday, February 3rd, 2020
Agrivisor - SETZ - Mon Feb 03, 2:21PM CST

As expected, the main topic of discussion in today’s trade was again the spreading Coronavirus. Chinese markets reopened last night with sharp losses that approached 9%. China is now reportedly asking the US to revisit the terms of the Phase 1 trade deal following the outbreak. Vessels in China are also facing significant unloading delays due to quarantine restrictions. The ongoing South American harvest and updated yield data was also a topic in today’s trade to start the week as progress on a whole remains slow. Trade suffered from a lack of buying interest today rather than heavy selling.

The Coronavirus continues to spread throughout China and around the world. In China alone there are now 17,000 cases reported with 361 deaths as of this morning. Cases in the US now total 11. More airlines have announced travel bans to China in an effort to limit its spread, along with travelers from China being held in quarantine. The Chinese government has announced it will be injecting $174 billion into the country’s economy to help offset financial losses from the outbreak.

The Brazilian soybean harvest continues to be slowed from excessive rainfall. An estimated 9% of the Brazilian soybean crop has been collected compared to the 19% a year ago at this time. While slower, the current harvest pace in Brazil is equal to the five-year average. The most activity has taken place in the state of Mato Grasso where 28% of the crop has been harvested.

After a very slow start to the year, Chinese soybean purchases from the United States jumped considerably to end 2019. China bought 3.09 million metric tons of US soybeans in December, 44 times more than in December 2018. The easing of trade tensions between the two countries led to this massive jump in demand. This shift weighed on Brazilian soybean sales during December, as those bookings declined by 13%.

Chinese officials are leery of this improvement in trade between the US and China. Brazil is expected to harvest a record soybean crop this year, possibly as much as 5 mmt more than a year ago. Concerns are that if the US and China resume trade, Brazil will see its soybean reserves swell to a burdensome level. As a result, soybean traders in Brazil have been more willing to liquidate inventory now prior to a build in stocks weighs on the market.

Even with improved trade relations, a seasonal decline in Chinese demand for US soybeans is taking place as the Brazilian soybean harvest ramps up. The line-up of vessels for US soybeans is currently 23% under the 4-week average as ships opt for Brazilian loadings. An overall decline in Chinese demand is also weighing on US soybean sales, especially with the recent outbreak of the Coronavirus.

Trade is starting to pay more attention to the world corn supply. At the present time there is a 96-day supply of corn in the world. This includes China’s reserves though, which are highly questionable in both volume and quality. If China is removed from the total, corn supply is just 42 days. We can dial this down farther to show that of the remaining world corn supply, 49% of it is in the United States. It is not out of the question this could make the US the world supply source for corn if global production issues arise.

While mostly over-looked by trade, the weekly export inspections were released this morning. For the week ending January 23rd, US corn inspections totaled 22.14 million bu, half of what is needed to reach yearly projections. Wheat inspections were also on the light side at 15.2 mbu, 5 mbu under the needed amount. Soybean loadings were twice the needed volume with 49.8 mbu. For the year, corn inspections trail last year by 52%, while soybeans are up 23% and wheat is 12% higher on the year.

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