Closing Comments; Tuesday, June 23rd, 2020
Agrivisor - SETZ - Tue Jun 23, 2:29PM CDT

Trade started out on the negative side today as the market continued to react to confusing information from the White House surrounding trade with China. Corn was also pressured today from a 1-point increase in the crop rating in the weekly conditions report. Soybeans were mixed today as even with conflicting trade data China was listed in the flash sales as a buyer of 132,000 metric tons from the US. Benign weather conditions weighed on all commodities while a weaker dollar was beneficial, especially to the wheat complex.

A considerable amount of confusion took place overnight and early today surrounding the US/China trade deal. Late yesterday the White House gave the indication the Phase 1 trade deal was no longer in effect. This was being credited to China not living up to trade promises. This was then clarified, and it was stated the Phase 1 deal is in place, but the US could no longer trust China. This was all the result of White House frustrations over China not informing the US of the Coronavirus outbreak in a timely manner.

Trade is closely monitoring its soybean demand, especially from China. China has primarily been sourcing its soybeans from Brazil, but that supplier is expected to be out of exportable reserves by the end of August. This will leave Brazil without soybeans to export until its next harvest in January or February and should be a great benefit for US sales. The question is how much coverage importers already have sourced and how much more they will need.

Trade is also aware of China’s corn demand. For the past several days it has been rumored China is shopping for US corn, but so far, no flash sales have been announced. China has started to auction corn out of its state-owned reserves by selling 150 million bu last week. This is not uncommon and done many years to help rotate inventory. The question is if China will need to make imports to refill these reserves or if they feel domestic production will by adequate to do so.

A bigger question for Chinese corn demand is where imports may be sourced from. Brazilian firms have upped their corn production forecasts, and yesterday Safras claimed the crop would total 108.4 million metric tons. The initial reaction is this would allow for Brazil to elevate its exports from last year. This may not be the case though, as Brazil over-extended its sales last year and needs corn to refill its own reserves. Brazil is also using more corn domestically, mainly for ethanol and feed. Under this scenario it is possible Brazil could produce a larger corn crop and actually be less of a competitor in the global market.

Trade is also starting to consider how many more imports China may need, specifically on soybeans. China already has 4 million metric tons of new crop US soybean purchases on the books. This is the highest level of purchases at this time of the marketing year since 2014. Given this pace, we would expect China’s yearly bookings to reach 28 mmt, or roughly 1 billion bu. This is nearly the same as the pace of the 2017/18 marketing year which was the last full year prior to the Trade War. This may be enough to get China through to the next South American harvest that normally starts in January.

One factor that could end up impacting all trade with China, as well as other buyers, is Covid-19. Many buyers have been asking for certification that exports will be free of Covid-19, both on meats and grains. This will likely raise concerns with an exporter, as it may be hard to maintain food safety between ports.

The cold storage report for June was released, giving us mixed numbers. Beef in storage on June 1st totaled 415.2 million pounds compared to 405.1 million in 2019. Pork in cold storage totaled came in at 467 million pounds, down considerably from the 629 million pounds from 2019. This was a result of the decline in processing following Covid-19 and increase to Chinese purchases. Pork bellies in cold storage totaled 59.18 million pounds, down from the 64.12 million pounds from a year ago.

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Market Commentary provided by:

Karl Setzer Grain Commentary