By Karl Setzer

 The rationing we have seen in the market this year has impacted soybean demand. November soybean futures are roughly $4.50 per bushel higher than a year ago. This has deterred export sales, mainly to China. So far, China has booked 72 million bu (mbu) fewer soybeans than a year ago at this time. Total soybean demand is only down 19 mbu on the year though as other buyers have stepped in to cover the void China has left. We also have larger sales to “unknown” buyers who many believe to be China. The South American soybean crop is also larger than a year ago, leaving less rook for the US in the global market.

Sales have also slowed on corn in recent weeks, but still remain above normal for the marketing year. In fact, current U.S. corn sales are record large for this time of year. New crop corn sales currently total 635 mbu and total corn commitments are at 990 mbu, a 75 percent increase from last year, according to data from Ag Resource. The present U.S. corn sales pace is also 45 percent above the previous record. Concerns over the short crop in Brazil have brought the United States additional demand, mainly from China.

Trade is not only focused on U.S. grain and soybean exports, but on beef and pork as well. The United States currently has 1 percent more pork sold for export than a year ago at this time. Pork sales to China are down from last year though, with China accounting for 28 percent of U.S. demand compared to 40 percent a year ago. We have seen other buyers step in to make up for this decline, mainly Mexico.

The United States is seeing a larger increase in beef demand where export sales are up 22 percent from last year. This number is a little misleading though, as last year’s beef exports were heavily depressed by COVID logistic issues and a low cattle supply. This increase in export demand is being offset with concerns over slowing domestic beef demand as U.S. consumer confidence starts to fade. High beef costs and a slow in disposable income growth may start to limit retail sales.

China continues to see its hog industry recover from African swine fever losses. This has caused a sharp reversal in Chinese pork values though, with values down 56 percent since the start of the calendar year. Hog margins have also fallen in China with producers currently facing an $8 per head loss. The Chinese government is now buying pork for storage to help support these values. This brings into question China’s long term pork import needs.

Trade is monitoring all Chinese demand at this time. In the first six months of 2020, the United States sold China $7.1 billion of ag products. In the second half of the year Chinese demand surged to $26.4 billion but still fell short of the yearly Phase 1 trade agreement total. Through May of this year, China had already booked $12 billion of ag goods, putting China on track to reach its yearly $33.4 billion objective.

The U.S. commodity market is stuck in a very tight spot. While futures need to remain elevated enough to restrict demand and provide adequate ending stocks, our values still need to be competitive enough to maintain at least some sales. In recent sessions we have seen declines to global corn and oilseed values which in turn have pressured the U.S. market. This is especially the case with cancellations starting to take place on old crop sales. Wheat demand has been better, but even there we have seen buyers cancel tenders due to high prices.

Another issue that is causing choppy trade right now is global rationing and food supply issues. This is mainly on food grains, particularly wheat, where global production is heavily mixed. Some states have plenty of wheat to allow exports while others could deplete their stocks. We are also seeing disruptions to the world meat supply, but this is being credited to COVID. Packing plants around the world are facing low labor numbers as COVID cases again rise, reducing the volume of meat they can supply.

Global wheat movement is also being impacted by a lack of farmer selling. Farmers around the world are holding their grain off the market as they feel values will appreciate as more crop loss takes place. This is especially the case with farmers in regions with high quality wheat to sell. The question now is at what value will producers start to market their stocks.

We are also starting to see renewed COVID concerns and measures impact commodity demand. We are starting to see more public events suspended around the globe, including the world’s leading commodity importer, China. The United States has canceled some events as well. This is starting to cloud consumer demand forecasts right as they were starting to rebuild. While no major shutdowns to economies are expected, the lack of consumer confidence is weighing on market potential.

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