Despite tariffs, commodities still in high demand

posted Aug. 13, 2018 8:56 a.m. (CDT)
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by / Karl Setzer

Weather remains one of the most dominant factors in trade, especially at this time of the growing season. For the most part we have made it through the reproductive stage of development. There are thoughts that now is when final yield is actually determined. August weather is the primary reason for the record crops in the past few years. Now is when we could finally see speculative buying develop, if it will at all.

When it comes to crop progress and condition, one factor is again gaining market attention: overnight temperatures. Once again we have not seen excessive heat during overnight hours, which has proven to be a great benefit for corn yield potential. As a result, many analysts have bumped their corn yields higher in recent weeks.

Much of the attention when it comes to production recently has been on corn, which is not uncommon. We are now at a point where more interest will be placed on soybeans. August is when pods are set and filled on much of the country’s soybean crop. Given current conditions and forecast models, it is unlikely we will see much of a reduction to soybean yield potential at this time.

Chinese officials continue to give trade mixed signals on soybean needs. Tariffs have reduced Chinese demand on U.S. soybeans, but not as much as some analysts had predicted. This is from China waiving the tariff on soybeans that will be placed in government storage facilities. At the same time, China is showing more interest in alternatives to U.S. soybeans, including the importing of canola and rapeseed.

Global soybean values are being heavily distorted by recent tariffs being placed on trade. This immediately increased the cost of U.S. soybeans to a Chinese buyer by 25 percent. Brazil was quick to elevate soybean values by 15 percent to take advantage of the higher cost associated with U.S. imports. While this is allowing Brazil to sell more soybeans to China at an elevated value, it pushed many nontraditional soybean buyers to the U.S. and had little impact on our overall sales.

Trade is receiving solid domestic usage numbers on corn, especially for ethanol. Ethanol demand on corn is running 2.9 percent ahead of a year ago. If this pace continues, the U.S. will likely see 5.6 million bushels of total corn usage this year. While just 25 million bushels more than currently estimated, it does reduce our reserves.

The same scenario is unfolding in the soy complex. The increase in soybean usage from estimates is much less, however, with indications demand will top expectations by 5 million bushels. This is mainly from the fact the soybean crush industry is already running at full capacity, and it will be difficult to find more demand. What could be more concerning for soybeans is if margins erode and plants take downtime for annual maintenance.

There is a major debate taking place in the market over the ability of China to completely bypass the U.S. for soybean needs. Several analysts claim this is not possible given China’s soybean appetite. Others claim that between soybeans in reserve and the use of alternative protein feeds, it would be possible for China to avoid the U.S. for one year. China could also import meal from Argentina if needed, although this would pressure its domestic crush industry.

Even though we have seen tariffs placed on U.S. exports in recent weeks, we continue to see elevated demand for our offerings in the global market, especially on soybeans. Not only is new-crop soybean demand elevated, but so is interest in the 2019-20 crop. Soybean sales for that marketing year have already topped 300 million bushels, more than twice the volume that was sold that far ahead a year ago at this time. China has even booked some soybeans for that year, proving they will need our offerings even with tariffs in place.

An interesting development could easily take place with Brazil and have a positive impact on U.S. soybean exports. Some analysts believe Brazil will continue to export soybeans to China, even if it cuts into Brazil’s own reserves. It is then believed Brazil will book soybeans from the U.S. at a sharp discount to the global market to replenish reserves. It is not out of the question Brazil could buy U.S. soybeans and have them shipped directly to China, and have little impact on U.S. ending stocks at all.

For more information, contact Karl Setzer at 800-383-0003, ext. 237,

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