By Karl Setzer

Weather remains one of the key factors in current price discovery models. It is well known that weather can still impact both corn and soybean production for the next four to six weeks. Weather is also being closely monitored to see if rains will develop and encourage winter wheat seeding in the U.S. Plains. This is the same situation in the European Union as drought continues and seeding of winter crops has been delayed. Trade is also closely monitoring the La Nina indicators for global production, mainly in South America, as we are approaching the start of their planting season.

Country movement of farm stored inventory has picked up recently, mainly on corn. Sizable basis incentives have been paid on corn to encourage movement and farmers have taken advantage of these. This is especially in regions where corn production is favorable and large crops are expected. Soybean movement has been minimal though, as producers feel they will see price improvement. Uncertainty over soybean production is also limiting selling interest at this time.

Not only is ethanol manufacturing in the United States being monitored, but in Brail as well. Brazil has started to shift more toward corn-based ethanol which is now 15 percent of the country’s overall production. As a result, we are seeing more distiller grain production in Brazil, and also more exports. Brazil has always exported DDGs, but this is ramping up, and competing with the United States. This was verified by a recent sale of 55,000 metric tons of Brazilian DDGs to Vietnam. As this output increases, it will apply pressure to U.S. DDG exports and ethanol-manufacturing margins as well.

While the United States is seeing the spread between our offers and others in the global market narrow, there are other factors driving demand as well. One of the main ones right now is quality and importers want U.S. inventory for blending purposes. Another factor is how quick commodities can be shipped, as we once again transition into a “hand to mouth” environment. One of the greatest influences in commodity demand is currency spreads, and unfortunately this is working against the United States.

When it comes to export demand, trade is placing heavy interest on soybeans. Current U.S. unshipped soybean commitments are record high at 578.4 mbu. There are mixed opinions on this rate of sales though, with some claiming this is a sign of active global demand that will cut into U.S. ending stocks. Others believe U.S. soybean sales are front-loaded and will drop off as buyers become covered. What will ultimately determine total demand will be the size of the South American soybean crop, which will be better known next spring.

Trade has disagreed over Chinese soybean demand for the past several months, and recent economic issues and their impact on China’s future have only added to the uncertainty. The USDA is predicting Chinese soybean imports of 98 million metric tons (mmt) for the 2022/23 marketing year. Chinese officials claim 2022/23 soybean imports will total 91 mmt. The real question is where these soybeans will be sourced from, as building trade relations between China and Brazil and predictions for a larger Brazilian soybean crop may increase their market share.

Another uncertainty in global trade is the larger Russian wheat production figure. Officials in Russia now claim this year’s wheat crop will likely total 95 mmt. The question on this is if this is totally on the Russia crop or if it includes land now occupied by Russia in Ukraine. If this total is partially the Ukraine crop it is distorting global production figures as some bushels are likely being counted twice.

Not only is Brazil competing with the United States on corn and soybean exports, but on beef as well. During the second quarter of 2022 Brazil exported 2.7 percent more beef than in the same quarter of 2021. Second quarter beef exports were also up 5.2 percent from the first quarter. Much of this added demand was from China, which accounted for 32.6 percent of sales. This figured out to 650,000 metric tons of beef trade. China has recently relaxed their import restrictions on Brazilian beef which is the primary cause of this elevated trade. Uncertainty over U.S. beef supplies is adding to the shift in origination, especially with the United States struggling to produce high-end cuts.

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