Closing Comments; Wednesday, February 5th, 2020
Agrivisor - SETZ - Wed Feb 05, 2:24PM CST

Coronavirus remains one of the primary stories in the market, although the initial shock and reaction to the outbreak appears to be easing. News that China is taking measures to prevent economic losses is a benefit, as is the fact China continues to buy commodities from the global market. Reports that China had asked the US to reconsider the Phase 1 agreement are being disputed today which is also beneficial. Advances are being capped by increased South American harvest pressure and elevated yield reports from those countries.

As we see the Brazilian soybean harvest gain momentum, we are seeing a spread in offers between that country and the US. Brazil is offering soybeans for the March/April time frame at a 15 cent per bushel discount to the US. For May the spread widens out to 40 cents per bushel. There is little doubt this will deter some of the buying interest the US has seen recently, including to China.

One reason Brazil can offer soybeans at a discount to the United States is improvements to the country’s infrastructure. The main one of these has been the paving of BR163, the main transit route from northern production regions to southern ports. This route was initially little more than a dirt road, but recent improvements have been made. This lowers the cost of transporting soybeans in Brazil, and in turn, lowers what Brazilian farmers are willing to sell product for.

This shift in demand from the US to Brazil for soybeans is being verified in the transit market. The vessel line-up in Brazil has increased this week with a reported 110 vessels currently waiting to be loaded. It is not surprising that the majority of these are going to be destined for China. Brazilian officials believe soybean exports will hit 7 million metric tons in February, well above the 5 mmt from February 2019.

Even with concerns over demand and usage from the Coronavirus, China is looking at corn import possibilities. China has corn in reserve in norther parts of the country, but this is needed in southern regions. Quarantines in China are preventing this movement from happening. As a result, China may import corn into southern regions to satisfy demand until the virus can be controlled.

Ethanol production for the week ending January 31st rebounded from previous weeks. A reported 1.081 million barrels of ethanol were processed each day, a 52,000-barrel increase from the previous week. Ethanol stocks also fell on the week by 770,000 barrels after several weeks of increases. Ethanol stocks are still a large 23.47 million barrels, but are under the volume of 23.95 million barrels from a year ago.

The US ethanol industry is starting to become a topic on the political front. More opinions are being given on the waivers that have been granted over the past two years. Thirty waivers have been granted during this period to large blenders such as Exxon and Mobile. The intent of these waivers was to provide economic relief to smaller refiners, but many in the renewable fuel industry feel they are being abused and want them repealed.

The 3rd and final tranche of the Market Facilitation Program payments is being sent out. Farmers across the US who are eligible should start to receive these payments by the end of this week. The question now is what will happen if markets do not rebound as hoped, as indications from the White House are there will be no additional payments. The concern is that the commodity market has not reacted to the trade deal news as hoped, as values have actually declined since many were made.

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.




 

Market Commentary provided by:

Karl Setzer Grain Commentary