Much of the attention in the market is currently on the large base of demand for new soybeans, but also for new corn sales. Sales of US corn with new crops are currently over 480 million bushels, an increase of 160% over the previous year. This is the latest crop of corn the US has sold at this stage of a marketing year. The low value of US corn compared to the world market is attracting buyers, particularly due to production problems that already exist in other regions of the world. The concern is that if corn values rise, demand will continue. The USDA is already forecasting large sales of new crops, which is also moderating the market reaction at this point.
However, the futures market has not responded to the large soybean sales we have seen over the past few weeks. One reason for this is that the USDA is already forecasting a sharp spike in soybean sales from old to new crops and those sales are required to make that happen.
Another reason is that most of the business was done with China and only with China. In fact, sales to other buyers at this point are below the five-year average. This is a cause for concern at the complex that China may stop buying, and even with record purchases, total US sales could lag behind expectations.
Trade raises the question of how long will current demand for soybeans last, especially to China. It’s no secret that China is currently the leading buyer of U.S. soybeans and claims to have made record purchases this calendar year. However, China has booked large quantities of new crop Brazilian soybeans and traders are now starting to speculate on when China will have sufficient coverage until these soybeans become available. For reference, China bought 8.18 million tons of Brazilian soybeans in July, compared with 38,000 tons from the US.
The trade is also trying to find out the corn situation with China and the demand for this grain. Sources in China report that the country has used up much of its usable corn reserves and the remaining inventory is being passed on. This was confirmed by this week’s corn auction in China, in which, in contrast to all previous sales, not all products on offer were sold. Corn in China has also rallied to the point where it has a $ 100.00 / ton premium on US corn imports. It is believed that this could lead to 15-20 million tons of Chinese corn imports this year.
Several other countries have indicated that they could increase their grain imports in the near future. Both the EU and Brazil announced this week that they would reduce or completely remove import tariffs this week to contain rising domestic commodity prices and contain inflation. However, there is some consideration that this might be needed to meet demand, particularly in the EU where the drought curbed this year’s production. Trade is asking why Brazil would do this after having only harvested bumper crops and still exported.
In China, raw material values have risen in recent months due to the shortage of supply. Soybeans, corn, and pork are the most talked about, but the country has seen its beef increases too. Beef levels in China are currently 16% higher than a year ago. While that pales in comparison to the 85% surge in pork values, it’s still a rally. This is one reason why we have seen an increase in Chinese import interest in the past few weeks.
Dry conditions are a concern not only on the production side of the markets, but also on the transport side. Low water levels have begun to affect the US river system and ship movement. When the water level drops, barges cannot be filled to capacity to prevent them from getting stuck by rivers. Raw material supplies in the Gulf are already beginning to decline, mainly corn, and this will only reduce them further. This slowdown in ship movement was confirmed by a weekly jump in rail movement of grain.
The United States is not the only country affected by dry weather. Argentina continues to suffer from drought conditions, particularly the country’s wheat crop. The drought is already affecting estimates of Argentine corn production as farmers are expected to reduce plantings in arid regions. This potential reduction in the Argentine corn crop is one of the main reasons we’ve seen more interest in US offers in recent weeks.
This comment is the sole opinion of Karl Setzer, AgriVisor’s market advisor. This is for informational purposes only and should not be used for specific trading recommendations. The information used to create this comment has been obtained from various sources that are believed to be accurate. If you have any questions or would like additional market information, please contact Karl at firstname.lastname@example.org. You can also follow Karl on Twitter via @ksetzergrains.