COMMODITY REPORT: JULY 24th 2020.

07/24/2020

  • The financial and economic implications of the COVID-19 pandemic continue but will gradually ease as society returns to a “new normal” despite a recent serious upsurge in cases.
  • Corn and soybeans fluctuated in price this past week. Corn reverted to late June price after orders placed by China and undisclosed importers over the past four weeks amounting to 3.47 million metric tons (136.7 million bushels). Orders for soybeans amounted to 3.37 million tons (126.9 million bushels).
  • Prospects for commodity exports to China at the beginning of the 2020/2021 market year have improved. China may have reduced their domestic short-term demand for soybeans as a result of continuing losses from African swine fever but chicken production has now recovered. China is also taking advantage of low shipping rates. The Baltic Panamax Index decreased from 1,000 in January to 800 in June but is rising. There is concern in China regarding future disruption in consigning commodities due to COVID-19.

Uncertainties still include:-

  • Whether China will satisfy obligations in terms of the Phase One Trade Agreement during 2020 is in question. The Agreement signed in mid-January incorporated U.S. tariff rescissions, promised purchases of agricultural commodities (valued at $36.5 billion in 2020 and $43.5 billion in 2021), concessions on some structural issues by China and strengthened enforcement provisions. The Phase-One Trade Agreement still appears intact despite negative comments by White House advisor, Dr. Peter Navarro who issued a subsequent “correction”. Given the prevailing political and diplomatic factors conditioning relations between China and the U.S., Phase-Two is effectively dead.
  • Domestic U.S. soybean and soybean meal demand is currently constrained by cutbacks in the intensive livestock and poultry sectors as impacted by COVID-19.
  • Justifiable uncertainty exists regarding the spread of African swine fever and COVID-19 to other Asian nations, Europe and North America with the potential to create a worldwide depression as economic activity is curtailed

Questions still exist:-

  • The eventual sizes of corn and soybean crops will influence price going forward. According to the June 30th USDA Planting and Stocks Report, corn acreage was down approximately five percent from the March estimate. Yields of corn and soybeans will be impacted by emerging drought and excessive temperature in the corn-belt. Projections were updated in the July WASDE released mid-month and are retrievable under the STATISTICS section of this newsletter.
  • A U.S. trade agreement with the U.K. should be concluded in 2020 but trade with the U.S. will be conditioned by commitments to the E.U. by the departing nation. Negotiations commenced in early January between Ambassador Robert Lighthizer and his U.K. counterpart, Minister Elizabeth Truss and are continuing at appropriate levels in working groups. A bilateral agreement will have to incorporate U.S objections over the use of Huawei communications equipment by the U.K. that now appears likely. The application of chlorine (only five percent of U.S. plants) and alternative anti-bacterial solutions such as peracetic acid in processing U.S. chicken and also feeding beta agonists to livestock must be resolved.

Corn to be harvested in calendar 2020 is expected to attain 15,000 million bushels with ending stocks projected at 2,648 million bushels, with the final value modified by yield and exports. Compared with the July 10th 2020 close, the CME quotation for September corn on July 24th was down for September delivery by 56 cents per bushel to 327 cents reversing the rise during the preceding week.

The social restrictions imposed in the U.S. as a result of COVID-19 will reduce ethanol demand by 1.5 billion gallons or 10 percent of projected 2020 requirement for addition to gasoline. Thirty percent of U.S. ethanol fermentation capacity is off-line at present but the outlook for increased demand is improving. Ethanol was priced at $1.13 per gallon on July 24th down 4 cents per gallon from the previous week and compared with a five-year low of $0.92 per gallon on March 26th. Currently gasoline at $1.27 per gallon (quoted, New York Harbor) is 12.4 percent more expensive than ethanol but has a 63 percent higher BTU rating than ethanol.

Soybeans, expected to be the beneficiary of the Phase-One agreement, were up 7 cents per bushel to 905 cents for August delivery. The USDA anticipates a 2020 crop of 4.125 billion bushels, up a noteworthy 16 percent from 2019 but subject to current and future climatic conditions. Ending stocks are projected at 425 million bushels.

From May 12th to June 9th the Yuan remained constant at CNY 7.08 to US$1 except for a brief spike at the end of May. During this time the Brazilian Real strengthened against the US$ from BRL 5.9 to BRL 4.9 and the BRL strengthened against the CNY from BRL 0.83 to BRL 0.69, effectively favoring purchases of soybeans by China from the U.S. The value of the BRL then declined with an increase in the incidence rate of COVID-19 in Brazil. On July 24th the BRL exchange with the CNY was 0.75 compared to 0.77 the previous week. The conversion of the US$ to the CNY was set at 7.02 on July 24th compared to 7.14 on July 17th.

The USDA reported the following sales over the past six weeks:-

  • 390,000 metric tons (14.3 million bushels) of soybeans was ordered by China on 22nd
  • 37 million metric tons (53.9 million bushels) of corn was ordered by China during the first week of July with 56 percent to be delivered in the 2019/2020 market year
  • 76 million metric tons of corn (69.4 million bushels) was ordered by China on July 13th for delivery early in the 2020/2021 market year.
  • 389,000 metric tons of soybeans (14.3 million bushels) was ordered by China on July 15th.
  • 132,000 metric tons of corn (5.2 million bushels) was ordered on July 15th by China for delivery in the 2020/2021market year.
  • 522,000 metric tons of soybeans [19.2 million bushels] was ordered on July 16th by China with 75 percent for market year 2020/2021.
  • 351,000 metric tons of soybeans [12.9 million bushels] was ordered by a non-disclosed nation on July 16th with 82 percent for market year 2020/2021.
  • 126,000 metric tons of soybeans [5 million bushels] was ordered by a non-disclosed nation on July 17th for delivery in market year 2020/2021.
  • 126,000 metric tons of soybeans [5 million bushels] was ordered on July 21st by China for delivery in the 2020/2021market year.
  • 180,000 metric tons of soybeans [6.6 million bushels] was ordered by a non-disclosed nation for delivery during the 2020/2021 market year.
  • 207,880 metric tons of corn [8.2 million bushels] was ordered by a non-disclosed nation with 88 percent to be delivered in the 2020/2021 market year.
  • 453,000 metric tons of soybeans [16.6 million bushels] was ordered on July 22nd by China with 85 percent for delivery in market year 2020/2021.
  • 262,000 metric tons of soybeans [9.6 million bushels] was ordered by China on July 22nd for delivery in the 2020/2021market year.
  • 211,300 metric tons of soybeans [7.8 million bushels] was ordered on July 22nd for delivery to a non-disclosed nation.
  • 132,000 metric tons of soybeans [4.8 million bushels] was ordered by China on July 23rd for delivery in the 2020/2021 market year.
  • 225,000 metric tons of soybeans [8.3 million bushels] was ordered on July 24th by a non-disclosed nation with 73 percent for delivery in the 2020/2021 market year.

For consecutive years 2017 through 2019 the U.S. supplied 34.4 percent of soybean requirements for China amounting to 95.5 million metric tons. This was followed by a decline to 16.9 percent of 88.5 million metric tons in 2018 and 16.6 percent of 88.0 million metric tons in 2019.

The following extracts from the June 30th 2020 edition of the Quarterly USDA Grain Stocks Report indicate the levels of storage on farms and in fields and off-farm for corn and soybeans. The data will be updated at the end of September.

  • Corn stocks in all positions on June 1st 2020 totaled 5.22 billion bushels, up less than one percent from June 1st Of the total stocks, 3.03 billion bushels are stored on farms, up three percent from a year earlier. Off-farm stocks, at 2.20 billion bushels, are down two percent from a year ago. The March - May 2020 indicated disappearance is 2.73 billion bushels, compared with 3.41 billion bushels during the same period last year.
  • Soybeans stored in all positions on June 1st 2020 totaled 1.39 billion bushels, down 22 percent from June 1st On-farm stocks totaled 633 million bushels, down 13 percent from a year ago. Off-farm stocks, at 753 million bushels, are down 28 percent from a year ago. Indicated disappearance for the March - May 2020 quarter totaled 869 million bushels, down 8 percent from the same period a year earlier. The June 11th WASDE projected the 2020 harvest for corn from 89.6 million acres and from 82.8 million acres for soybeans. These values were lower than the projections developed before the advent of COVID-19.

The following quotations for September and August delivery were posted by the CME at close of trading on July 24th compared with values posted on July 17th (in parentheses) reflecting specified months for delivery.

COMMODITY

Corn (cents per bushel)

 Sept. 327 (383)

Dec. 336 (340)

Soybeans (cents per bushel)

 Aug. 905 (898)

Nov. 899 (892)

Soybean meal ($ per ton)

 Aug. 291 (287 )

Dec. 299 (294)

Changes in the price of corn, soybeans and soybean meal over five trading days this past week were:-

COMMODITY CHANGE FROM PAST WEEK

Corn: Sept. quotation down 56 cents per bushel (-14.6 percent)

Soybeans: Aug. quotation up 7 cents per bushel (+0.8 percent)

Soybean Meal: Aug. quotation up $4 per ton          (+1.4 percent)

The shortage of meat and bone meal in May and June due to reduced processing of pork and beef has ended. Prices for this ingredient for Central U.S. delivery settled at $203 per ton on July 21st down $2 per ton from the previous week. On July 23rd 2019 Meat and bone meal was priced at $215 per ton. The production of meat and bone meal from euthanized whole hogs will require adjustment of ingredient matrices for meat and bone meal depending on source.

With more plants producing ethanol, DDGS is now more available at a lower price. Eastern Corn-belt product was priced at $138 per ton on July 27th, $8 per ton lower than on July 16th 2019.

  • For each 10 cent per bushel change in corn:-

The cost of egg production would change by 0.45 cent per dozen

The cost of broiler production would change by 0.25 cent per pound live weight

  • For each $10 per ton change in the price of soybean meal:-

The cost of egg production would change by 0.44 cent per dozen

The cost of broiler production would change by 0.25 cent per pound live weight

COMMENTS

Subscribers are referred to the July 10th WASDE #602 accessed under the STATISTICS tab.

Dr. Joe Glauber of the International Food Research Institute and formerly a USDA economist for 30-years, expressed the view that China would not be able to comply with obligations under the Phase One Agreement. Imports of U.S. commodities amounted to $9 billion for the first half of 2020, comprising pork, cotton, corn and wheat. The volume of commodities delivered would have to increase to $13 billion for each of the succeeding quarters to attain the promised $36.5 billion for the current year. Dr. Glauber anticipates that China might even fail to meet the 2017 baseline of $24 billion. Escalating tensions with China over COVID-19, espionage and pressure on Hong Kong will not benefit exports to that Nation.

The President opined on July 10th that he is “not contemplating a second phase of a trade agreement with China”

During 2018 and 2019 a total of $28 billion was disbursed to the agricultural sector in Market Facilitation Program (MFP) payments. Additional requests are being made by industry groups for 2020 MFP relief and these may be justified by delayed or anticipated lower imports by China. President Donald Trump stated in late February 2020 that the Federal Government would “provide additional aid to U.S. farmers as needed until recently negotiated trade deals with China, Mexico, Canada and other countries fully kick in”. At least one round of 2020 MFP payments was anticipated. Approximately $16 billion will be disbursed under the Coronavirus Food Assistance Program (CFAP). As of June 3rd, $540 million has been distributed. This effectively represents a transfer of funds from taxpayers and their grandchildren to the agricultural sector.






























































































































































































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