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Chick-News.com Poultry Industry News, Comments and more by Simon M. Shane

COMMODITY REPORT: MAY 15th 2020.

05/15/2020

  • The financial and economic implications of the COVID-19 pandemic are becoming more apparent in the U.S. economy. Corn and soybeans both decreased slightly in price this past week. Corn futures for July delivery were lower by 0.3 percent compared with the quotation on May 8th.  Soybeans were 1.5 percent lower compared with the May 8th quotation for July delivery. Anticipated increases in price have not materialized after signing the Phase-One trade agreement with China or following ratification of the USMCA.
  • Prospects for commodity exports to China are apparently still restrained but less by the logistic restrictions imposed by the last phases of the COVID-19 outbreak. China has reduced their short-term demand for soybeans as a result of continuing losses from African swine fever and disruption of poultry production that is now recovering. April imports of soybeans by China amounted to 6.71 million metric tons (246 million bushels), 14.8 percent lower than during April 2019. Soybeans from Brazil are priced more competitively than from the U.S. due to availability and a favorable currency exchange. The USDA projects that 1.8 billion bushels of soybeans will be imported by China from Brazil in 2020. The U.S. hopes to commence shipping in quantity during late summer.

 

 

Uncertainties still include:-

  • The extent and timing of soybean purchases by China in 2020. The U.S - China Phase-One agreement signed in mid-January incorporating U.S. tariff rescissions, promised purchases of agricultural commodities, concessions on some structural issues by China and strengthened enforcement provisions. A telephone meeting between senior officials of the U.S. and China on Friday May 8th resulted in a reassurance that China would fulfill its obligations with respect to imports of U.S agricultural products. Both sides accepted the need to improve relations damaged by recent injudicious rhetoric relating to the origin of COVID-19.
  • It is anticipated that China will take advantage of low world prices for commodities to import 20 million tons of corn (787 million bushels) and 10 million tons of soybeans (365 million bushels) to add to reserves. The U.S. expects to supply part of this requirement
  • Imports of soybeans from Brazil were delayed by inclement weather and port disruptions during the first quarter of 2020, resulting in soybean stocks falling to a multiple-year low. Imported consignments increased stocks to 4.26 million tons (157 million bushels), up 28.7 percent from March 2020.
  • The market is now more accepting of the reality that future shipments of soybeans to China will not take place according to the quantities promised by the Administration after signing the Phase-One agreement.
  • Total world soybean shipments from the U.S. in 2020 YTD have amounted to 5.26 million tons, (193 million bushels), approximately 9.3 percent of the quantity required to meet the May USDA WASDE projection of 2.055 billion bushels. Through March 2020 soybean shipments attained an average of 16.5 million bushels per week compared to a quantity of 30.3 million bushels (1,102 million metric tons) per week to meet the projected export target.
  • Domestic U.S. soybean and soybean meal demand is currently constrained by cutbacks in the intensive livestock and poultry sectors as impacted by COVID-19.
  • Justifiable uncertainty exists regarding the spread of COVID-19 to other Asian nations, Europe and North America with the potential to create a worldwide depression as economic activity is curtailed

 

Questions still exist:-

 

  • Traders are reviewing projected ending stocks for the 2019 crop and taking into account the initial planting intentions reflecting a February USDA survey of corn and soybean acreage for 2020 before the advent of COVID-19 that distorted production, distribution and consumption of food.
  • The optimistic projections for planting corn and soybeans in 2020 as published on March 31st by the USDA are materializing. Planting is advancing at a rapid pace.
  • A U.S. trade agreement with the U.K. should be concluded in 2020 but trade with the U.S. will be conditioned by commitments to the E.U. by the departing nation. Negotiations commenced this past week between Amb. Robert Lighthizer and his U.K. counterpart Minister Elizabeth Truss. A bilateral agreement will have to overcome disagreements over the use of Huawei communications equipment by the U.K. and chlorination applied to process U.S. chicken.

 

Compared with the May 8th 2020 close, the CME quotation for July corn posted at 15H00 on May 15th was down by 1cent per bushel to 319 cents.  China purchased 567,000 tons of corn on Friday 3rd April valued at $73 million. This quantity represented 1.3 percent of projected U.S. corn exports in 2020. The social restrictions imposed as a result of COVID-19 will reduce ethanol demand by 1.5 billion gallons or 10 percent of projected 2020 addition to gasoline. Half of U.S. ethanol fermentation capacity is off-line at present.

 

July soybeans, expected to be the beneficiary of the Phase-One agreement, were down 13 cents per bushel to 850 cents, continuing to accumulate losses over the past month. China ordered 272,000 tons (10.0 million bushels) last week and booked an additional 378,000 metric tons (13.9 million bushels) for delivery before the end of the current market year on August 31st.

 

For consecutive years 2017 through 2019 the U.S. supplied 34.4 percent of soybean requirements for China amounting to 95.5 million metric tons. This was followed by a decline to 16.9 percent of 88.5 million metric tons in 2018 and 16.6 percent of 88.0 million metric tons in 2019.

 

The following extracts from the March 31st 2020 edition of the USDA Grain Stocks Report indicate the levels of storage on farms and in fields and off-farm for corn and soybeans.

  • Corn stored in all positions on March 1st, 2020 totaled 7.95 billion bushels, down 7.7 percent from March 1st Of the total stocks, 4.45 billion bushels are stored on farms, down 13.3 percent from a year earlier. Off-farm stocks, at 3.50 billion bushels, are up 0.5 percent from a year ago. The December 2019 through February 2020 data indicated disappearance at 3.45 billion bushels, compared with 3.32 billion bushels during the same period last year.

 

  • Soybeans stored in all positions on March 1st 2019 totaled 2.25 billion bushels, down 17.4 percent from March 1st Soybean stocks stored on farms totaled 1.01 billion bushels, down 20.3 percent from a year ago. Off-farm stocks, at 1.24 billion bushels, are down 14.8 percent from March 1st 2019. Indicated disappearance for December 2019 through February 2020 totaled 1.00 billion bushels, down one percent from the same period a year earlier.

The USDA Prospective Planting Report released March 31st estimated 97 million acres of corn and 83.5 million acres of soybeans, up respectively 8 and 10 percent from 2019. The May 12th WASDE projected the 2020 harvest for corn from 89.6 million acres and from 82.8 million acres for soybeans. These values were lower than the projections developed before the advent of COVID-19.

 

The following quotations for July delivery were posted by the CME at close of trading on May 15th 2020 compared with values posted on May 8th 2020 (in parentheses) reflecting specified months for delivery.

 

 

COMMODITY

 

Corn (cents per bushel)

  July  319  (320)        

Sept.  322

Soybeans (cents per bushel)

  July  837  (850)

Sept.  840

Soybean meal ($ per ton)

  July  287  (291)

Sept.  290

 

 

Changes in the price of corn, soybeans and soybean meal over five trading days this past week were:-

 

COMMODITY            CHANGE FROM PAST WEEK

Corn:                  July quotation down 1 cent per bushel          (-0.3 percent)               

Soybeans:          July quotation down 13 cents per bushel      (-1.5 percent)

Soybean Meal:   July quotation down $5.5 per ton                   (-1.9 percent)

 

 

A current shortage of meat and bone meal is due to reduced processing of pork and beef. Prices for this ingredient for Minneapolis delivery fell to $310 per ton on May 13th compared to $350 per ton a week previously. On May 14th 2019 Meat and bone meal was priced at $180 per ton. Depending on location and availability the rise in price of meat and bone meal could add $5 to $10 per ton to layer-hen diets due to escalation and higher inclusion of synthetic amino acids. An increase of $7.50 in the cost of reformulated diets represents 1.3 cents per dozen in production cost. The cost of meat and bone meal should decline as packing plants resume operation. The production of meat and bone meal from euthanized whole hogs will require adjustment of ingredient matrices depending on source.

 

 

  • For each 10 cent per bushel change in corn:-

 

The cost of egg production would change by 0.45 cent per dozen

 

The cost of broiler production would change by 0.25 cent per pound live weight

 

 

  • For each $10 per ton change in the price of soybean meal:-

 

The cost of egg production would change by 0.44 cent per dozen

 

The cost of broiler production would change by 0.25 cent per pound live weight

 

COMMENTS

 

Subscribers are referred to the May 12th WASDE #600 under the Statistics TAB.

 

USDA Chief Economist Robert Johansson speaking at the 96th Agricultural Outlook Forum indicated that U.S. agricultural commodities to the value of $14 billion would be imported by China in 2020, far short of the $40 to $50 billion per year promised by the White House in terms of the Phase-One Agreement. In the light of decreased demand in China due to COVID-19, purchases from Brazil and port congestion, now easing, the volumes suggested by Dr. Johansen may be optimistic. In an April 3rd. interview Johansson noted that the Administration target of $40 billion “is still feasible”

 

More recently Dr. Joe Glauber of the International Food Research Institute and formerly a USDA economist for 30 years, expressed the view that China would not comply with obligations under the Phase One Agreement. Imports of U.S. commodities amounted to $5 billion in the first quarter of 2020, comprising pork, cotton, corn and wheat. The volume of commodities delivered would have to increase to $10 billion for each of the succeeding quarters to attain the promised $36.5 billion for the current year. Dr. Glauber anticipates that China will fail to meet the 2017 baseline of $24 billion. Escalating tensions with China over COVID-19 will not promote exports to that Nation.

 

During 2018 and 2019 a total of $28 billion was disbursed to the agricultural sector in Market Facilitation Program (MFP) payments. Additional requests are being made by industry groups for 2020 MFP relief and these may be justified by delayed or anticipated lower imports by China. President Donald Trump stated in late February 2020 that the Federal Government would “provide additional aid to U.S. farmers as needed until recently negotiated trade deals with China, Mexico, Canada and other countries fully kick in”. At least one round of 2020 MFP payments or their equivalent amounting to $15.5 billion to producers would be funded in part by tariff revenue. This represents a transfer of money from consumers to the agricultural sector.


 
Copyright © 2020 Simon M. Shane