Closing Comments; Tuesday, April 21st, 2020
Agrivisor - SETZ - Tue Apr 21, 2:49PM CDT

Commodities were under significant pressure today as funds were sellers in nearly every contract. An overall concern over demand is the main reason for this activity as a quick end to the Coronavirus outbreak and its impact on the economy seems less likely. An active week for planting across many parts of the Corn Belt is also weighing on futures, even though some regions of the US remain delayed. The tone of the market now is that even if production is down this year, loss of demand will more than off-set it. This may be a factor the market struggled with for several months.

One of the greatest losses in demand the US is suffering from right now is ethanol manufacturing. According to the Renewable Fuel Association, ethanol manufacturing will decline by 20% in 2020. This equates to roughly 3 billion gallons of lost production. Ethanol plants are expected to lose $10 billion of revenue from this decline. Nearly 50% of the US ethanol plants are currently idled with no indication of when operations may resume.

Chinese officials have indicated that even with record corn production being predicted, they may up their US corn imports. China is considering the waiver of import tariffs on 2 million metric tons of US corn as values drop to historic lows. Much of this corn would be placed into government storage facilities to help the country rebuild its grain reserve. These purchases would also help China to achieve its Phase 1 trade agreement.

Buyers continue to flock to South American for soybeans though, mainly to Brazil. The Brazilian soybean harvest is nearing its later stages with 95% of it being complete. A reported 80% of the crop is already sold and loadings are up 43% from last year. This has put a damper on US sales, and easily could for the next several weeks. The most interest is on China who was expected to be a buyer of US offerings by summer, but this is becoming less likely.

While exports of US soybeans have been mixed in recent weeks, crush totals have been well above expectations. In fact, soybean crush has reached record volumes since the first of the year. Unfortunately, this has started to generate an abundance of soy products, mainly meal. Even with record demand meal inventories have risen to a point where some plants have had to slow operations as storage capacity is reached. We have seen an increase in meal usage due to the reduction in distiller grain availability, but with many feeders shifting to maintenance feed rations until packing needs surface, it will limit added demand.

Adverse weather is causing some analysts in Brazil to lower their Safrinha crop estimates. The firm Ag rural is now estimating the Safrinha crop at 67.9 million metric tons, down from their previous estimate of 69.2 mmt. This is also a reduction from last year’s 69.3 mmt crop. Recent rains have halted crop deterioration, but further reductions to yields are still likely given current weather outlooks. Any reduction to Brazil’s Safrinha crop will impact the country’s ability to make exports, especially with a need to rebuild domestic reserves.

The outbreak of the Coronavirus and its spread around the world have altered the way we look at commodity markets, and likely will forever. More and more grain producing countries have started to impose export restrictions to maintain adequate domestic reserves of products. This has generated a tightening of some commodities in the global market and limited the ability of countries that make imports to secure coverage. There are worries that this could cause regional food shortages around the globe and create world economic issues.

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