By Karl Setzer

 A big story in recent trade has been the developments between the United States and China on trade regulations. This comes from China missing its first half of the Phase 1 agreement and the likelihood of missing the second half as well. The Phase 1 agreement set Chinese import regulations for 2020 and 2021. China missed the 2020 requirement by 40 percent and is behind 30 percent on the 2021 quotas. The United States has also indicated all current tariffs will remain in place. At this time there is little chance of a Phase 2 agreement being reached.

Chinese officials have released their updated corn demand forecast for the 2021/22 marketing year, lowering their projected usage. China claims corn consumption for feed will total 187 million metric tons (mmt)mt for the year, a 3 mmt decrease from its previous outlook. Reduced hog numbers and continued use of alternative feed grains are behind this lower demand figure. Industrial use of corn is also forecast to decline by 2 mmt this coming year. China left its corn import figure unchanged at 20 mmt though, which was a positive sign.

While mostly favorable, weather remains a factor in current price discovery. The United States is expected to remain mostly dry for the next 90 days which will not only favor harvest, but likely allow for a large amount of fall tillage as well. Dry weather is bearish at the present time, but if we start to see indications of these conditions lingering into our next production season the markets will react. The United States cannot afford any production losses this year or next. This will likely keep risk premium elevated in the U.S. market even when the current crop year ends.

One development that is tempering market reaction to drought conditions is this year’s yields in abnormally dry regions of the country. Drought impacted several areas of the Corn Belt this year, but even so, yields came in at the top side of expectations. In fact, some regions of the Corn Belt reported record yields. Field scouts claim this shows us the timing of rains during the growing season can be just as beneficial as overall precipitation totals.

Forecasters continue to point toward a La Nina event to build over the next few months and are now starting to give more details on the pattern. While still building, the overall intensity of the event is expected to be much less than the one that took place a year ago. The longevity of the building La Nina is also forecast to be shorter, which means its impact on global production may be much less than a year ago as well.

The South American planting season is now well underway in both Argentina and Brazil. As this takes place, we are seeing some alterations to normal patterns, especially in Argentina. Argentina has historically split their corn planting into two windows: one from September to October and then from December until completion. Farmers in Argentina have found that if more corn is planted later it tends to avoid weather stress and yield better. This was even the case this past year when a La Nina impacted the country’s crops.

Trade is closely monitoring Brazil’s soybean sales and trying to determine how much product the country has left to export. Brazil has not been posting offers past September, but at the same time, reports are coming in that China is trying to buy soybeans from Brazil for October/November shipment. Brazil is also offering soybeans for January delivery at a sharp discount to the United States. Even with a temporary halt in sales, this indicates Brazil is comfortable enough with reserves to extend its sales window.

Brazil is forecast to produce larger corn and soybean crops this year, which has some analysts believing their sales period will be extended even further. While this is possible, Brazil’s domestic demand for these crops is growing as well, and they may not have enough to increase exports and cover its own use as well. Brazil has been willing to sell its entire crops in recent years though and then cover domestic needs with imports from other South American countries.

One country who Brazil is leaning on more heavily for imports is Argentina. Argentine officials have recently announced the country will expand its corn plantings this coming year which will be a great benefit for Brazil. Argentina is also expected to make a slight reduction to its soybean production this coming year. Demand is one reason for this change, but so is the country’s export tariff rates. The current export tax on soybeans is 31 percent, while the rate is just 12 percent on corn.

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