AgriVisor Market Recap

Wednesday, February 19, 2020
Trade was on the negative side early in today’s session as a correction from yesterday’s grain rally took place. This wore off by midsession though and allowed futures to work higher. Soybeans traded on the positive side today on news of China booking a couple vessels out of the Pacific Northwest this week for February or March shipment due to loading delays in Brazil. Advances on a whole were limited by favorable weather in South America and ongoing high yield reports on both soybeans and corn in Brazil. 

Soybean harvest is progressing in Brazil, now reaching the 21% completion mark. As it does yields remain above expectations, with some describing the crop as “exceptional.” The USDA just estimated the Brazilian soybean crop at 125 million metric tons, but analysts in the country claim it could be closer to 126 or 127 mmt, and possibly higher. This has slowed soybean buying in the spot market as buyers know they will have ample supplies to choose from in the future, possibly at lower values. 

Weather conditions in South America remain near perfect for finishing out the current crops and the start of the Safrinha corn crop. Normal to above normal precipitation continues to fall across northern Brazil, and while this is slowing harvest, it is not damaging crops. Argentina is reporting dry but cool conditions which are highly favorable there as well. These are the main reasons we are seeing private analysts predict larger crops than what the USDA printed a week ago. 

The slower soybean harvest pace we are seeing in Brazil this year is starting to impact the export market. While not have done so yet, some buyers have indicated they are considering the shifting of soybean bookings from Brazil to the US Pacific Northwest. The reason most buyers are hesitant to make this move is the difference in value between the two sources, and how even with delays, soybeans from Brazil are at a considerable discount to the US. An overall reduction to soybean demand, mainly into China, is also reducing interest in shifting origins at this time. 

China is starting to show more concern over its commodity supplies as the effects of the Coronavirus continue. One most noted is poultry as China has lifted all restrictions on imports. China has avoided most US poultry up to this point on concerns of Bird Flu being brought into the country. Now, not only is China purchasing processed poultry from the US, but live birds for breeding purposes as well. While this is positive news, the fact that unloading delays at Chinese ports are already causing vessels to be redirected is limiting market response. 

Ukraine has become one the of leading sources of competition for the United States in the global commodity market, especially on grains. This is mainly from elevated production in that country, especially on corn. Ukraine corn output has risen 56% in just the past nine years due to better farming practices, mainly improved seed technology and input usage. Wheat production has also increased over this time frame by a large 33%. This has made Ukraine a leading source for commodities, especially into the Asian market. 

Even with Ukraine grain output expanding, we may see a slight dip this coming year. This is mainly on wheat production, where wet conditions have reduced the size of the country’s winter crop. Ukraine officials are now projecting total 2020 wheat production at 26.2 mmt, down 7.3% from this year’s crop. The country is holding its corn crop estimate at 36 mmt, unchanged from this year.