By Karl Setzer

 The aftermath of Hurricane Ida is still impacting trade and may for several weeks. The concern is mostly focused on the logistic issues, primary damage to export terminals. Some facilities claim they will be down for several weeks, possibly months, until adequate repairs can be made. Others are reporting minimal damage and expect to be fully functional in days. The concern in the market is this could deter export interest right at the start of the U.S. harvest.

Trade attention is shifting back to actual demand, especially on soybeans. China has been an active soybean buyer of U.S. soybeans recently as not only do they need to cover usage, but the United States is again the cheapest source of soybeans in the global market. U.S. soybeans are currently $15 per metric ton under Brazil. This is enough to counter the cheaper freight out of Brazil to most buyers, including China. Brazil has also pulled its offers past October, indicating they will be out of exportable stocks by then.

We are also seeing questions arise on ethanol demand for corn. U.S. ethanol stocks made a sizable decline last week, mainly from elevated export demand. Trade is concerned that if this export demand falters, we will see ethanol reserves jump to a burdensome level, especially since they are already larger than a year ago. This is from an overall decline in gasoline demand which was down 4 percent last week. Gasoline demand has also struggled to reach pre-COVID levels and may continue to do so.

We are already seeing mixed opinions on our new crop demand. Exports of corn and soybeans are currently record paced but signs indicate these are front-loaded and may trail off as the marketing year progresses. These thoughts are based on the expectations for a considerable build in Brazilian production. Early indications are Brazil will expand soybean plantings by 3-4 percent this year and corn by 4-5 percent. If correct, this will give the world market more inventory for the United States to compete with as the marketing year progresses.

One factor that is being closely watched in the export market is where inventory is located in relation to export channels. Importers are focusing their U.S. purchases on the Pacific Northwest as shipping times and costs are less than the Gulf, especially into China. The greatest yield loss in the United States this year is in areas that feed the PNW though, which may restrict the volume of soybeans and grains that can be moved to those terminals. What inventory does move to that region for export may actually carry a higher cost than the gulf, limiting overall demand. 

Competition for the United States in the global market is starting to dwindle. The most talked about is Brazil where soybean sales are expected to end in another four-six weeks. Another is Russia where grain exports currently total 4 million metric tons (mmt) for the 2021/22 marketing year. This is down a large 25 percent from a year ago. This decline is mostly from a loss of wheat sales due to a 6.3 mmt smaller crop than last year.

One country the United States might see more competition from is Argentina on corn. Argentine officials claim to have 18 mmt of corn in reserve. This is a record for this time of year and a 20 percent increase from a year ago. This large corn inventory is the result of the holding of old crop reserves as this year’s corn crop is expected to be down and harvest is much slower than normal. Argentina may be able to supply more corn to the global market as a result, helping cover the losses in Brazil.

The United States is starting to see how wide of an export window it will have on soybeans this year. China is still buying soybeans from Brazil for September shipment. China is booking soybeans from the United States starting in October. Brazil is again selling soybeans to China for April shipment, which will leave the United States a six-month window for sales. The question is how much of this demand China already has on the books and how much more we will see, along with China’s overall demand.

The odds of a La Nina building this year are starting to increase. Forecasters claim there is now a better than 60 percent chance of a La Nina being in place by November. The concern with this is that it will form right at the normal start to the rainy season in South America and generate another drought. La Nina events are also known to bring floods to Palm Oil producing countries, as well as elevating the number of named hurricanes. The question is how long a La Nina may last, as models indicate it will diminish by early spring.

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