By Karl Setzer

 The November fats and oils report showed slightly less soybean consumption than trade was expecting. A reported 190 million bu (mbu) of soybeans were processed by U.S. crushers, which was just under the average trade guess. This was also under the 197 mbu that were crushed in October, but in line with the 191 mbu crushed in November 2020. Soy oil production for the month was reported at 2.25 billion pounds, a 4 percent decline on the month.

Corn use for ethanol in November was also released with 469 mbu being processed. This was up fractionally from October, but a large 9 percent increase from November 2020. This total was also a four-year high usage total for the month of November. Marketing year-to-date corn demand for ethanol now totals 1.34 billion bu. More ethanol plants are starting to resume operations following COVID shutdowns, which will likely lead to higher demand in reports.

U.S. beef exports for 2021 are going down as the largest on record. The latest data shows U.S. beef exports for 2021 totaled 910,500 metric tons, with one week of data left to collect. This is a direct result of Chinese demand, which was a record 152,000 metric tons for the year. The question now is if this demand will carry into 2022 as Brazil, a leading competitor of the U.S. beef exports, starts to resume shipments.

We are also seeing interest on U.S. pork exports as data indicates 2021 demand was over-stated. Buyers have been rolling some of their 2021 purchases forward, but there is still a large volume of unshipped pork sales on the books. As of last week, the United States had outstanding pork sales of 121,000 metric tons on the books. The question now is if these remaining sales will be rolled forward as well, or simply washed out of. Either way, it will alter our 2021 pork balance sheets.

One of the greatest unknowns for U.S. pork demand is what is taking place in China. China reports its hog herd is growing, with sow numbers at the end of November up 4.7 percent from a year ago as the country rebounds from African swine fever. This put China’s sow herd at 43 million. China’s slaughter is rapidly increasing though and is up 66 percent from a year ago. This is flooding China’s market with cheap pork and will likely slow their import appetite.

The question is what this means for Chinese pork imports from the United States. China has been rolling a large portion of its 2021 U.S. pork purchases to 2022. China currently has 44 million pounds of pork purchases form the United States on the books for 2022 shipment. This compares to 106 million pounds a year ago and a huge 528 million pounds of purchases in 2019. The loss of this business is likely to pressure U.S. hog futures regardless of current pork stocks data.

Trade is also keeping a very close eye on China’s demand for U.S. soybeans. Last week, China accounted for 55 percent of U.S. soybean shipments. For the marketing year, China has been the destination for 64 percent of cumulative loadings. The concern with this is that the United States is not China’s leading soybean supplier, and if we see their business continue to decline, we may not see enough other buying surface to cover the void that is created.

Quality is starting to become more of a factor when it comes to price discovery, especially in the export market. Buyers have started to show more restraint when making purchases from regions of the world where lower quality crops have been produced. At the present time this is most notable in the wheat market where buyers are showing concern over the Australian crop. Even with record production, some buyers are covering needs from other sources, even if the cost is higher.

Quality is not just a factor in wheat, and not just in the global market. Buyers are also showing concern over U.S. corn quality. There are reports of high foreign material in corn this year which makes it harder to store and may lead to further quality issues later in the year. There are also reports of low-test weight on new crop U.S. soybeans, which buyers will avoid if possible.

The overall state of the U.S. farm economy is improving. Net farm income has been forecast to increase this year, and at the same time, farm loan delinquencies have declined. Federal banking officials claim delinquent farm payments this year are down nearly 40 percent from a year ago. This is the lowest number of defaults since 2015. There are concerns that the rising cost of inputs this year will cause delinquencies to increase.

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