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Karl Setzer Grain Commentary

Closing Comments; Friday, December 6th, 2019

** Please note, there will not be an update to the market recap on Monday, December 9th, as we will be at the Illinois Farm Bureau meeting in Chicago. Thank you! **

Soybeans maintained their strength into the weekend as buying continued. Much of this was short covering following a drop into oversold conditions, but news that China may be willing to lift tariffs on at least some US soybeans was also supportive. Corn and wheat struggled today as buyers were not as interested in those commodities. The jobs report for November was released today with higher than expected numbers which drew investors away from commodities. This put a cap on all gains.

Chinese officials announced today that they would be willing to grant additional waivers on soybeans and pork from the United States. The immediate reaction to this news was positive, but support wore off as the session progressed. This was from the fact that no quantities were given, nor a time frame on when waivers may be granted. It is likely the Chinese were doing this to try and avoid additional tariffs from be enacted on the 15th, but US sources claim the tariffs are still being considered.

Hopes are the US and China can come to some sort of a trade deal soon, as after China filled its last waivers, their purchases have dropped off considerably. While China was still a major buyer in the weekly sales report, their bookings last week were the lowest in the past six weeks. The concern with this is that without China, weekly sales will drop below the volume needed to reach our yearly USDA projected total.

Chinese officials are taking steps to try and reduce their soybean import needs. China’s soybean production in 2019 totaled 19.1 million metric tons, and while well short of their imports of 80 million metric tons, it was a 13% increase on the year. This is partly from an 11% increase in plantings, but also from elevated production from better farming practices. Chinese farmers are restricting plantings to higher production areas which allows them to use less but higher quality inputs. In turn, this is giving them higher yields. This is especially the case in corn where plantings decreased by 2% last year but production was up 1%.

Trade has noted a slight shift in the El Nino weather indicators. While minimal, we have started to see a move towards an El Nino system developing. While it is very early to add this into forecasts, it does give trade something to talk about. In a typical El Nino year, both the United States and South America tend to see above normal yields. This has a lot of factors that can change though, with how long the system lasts and how strong it gets being the main ones.

Last year’s canola crop in Canada was one of the lowest in recent history according to government sources. For the year Canada produced 18.6 million metric tons of canola, 6% less than the previous year and the least amount in four years. This low production was the result of high moisture, the same as it was for US crops. The US may see less competition in the global oilseed market as a result. Canada projected its wheat crop at 32.3 million metric tons today which was very close to a year ago.

The United Sates has seen record demand for its pork in recent months. Census data shows that in the month of October alone the US exported 520.9 million pounds of pork, a monthly record. Yearly pork exports are already up 37% from last year. Hog values continue to struggle though, as even with this demand, pork supplies continue to grow. This is why the market is so anxious to see China lift its tariffs and start making purchases.

This commentary is the sole opinion of Karl Setzer, Senior Commodity Risk Analyst for AgriVisor, LLC. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to send an e-mail to ksetzer@agrivisor.com.


 

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Karl Setzer Grain Commentary