China Buys U.S. Soybeans and USDA Report
Update for December 12th, 2018
The 2018 Farm Bill was approved Tuesday by the Senate by a vote of 87 to 13, the next step will be for the House to take a vote which is expected to happen yet this week. A few of the key provisions of the new Farm Bill include improvements to the Dairy Margin Protection Program, changes to ARC and PLC guidelines, and increased spending on several major conservation programs.
The USDA updated their estimates for U.S. and world supply and demand for the month of December. Corn used for ethanol production was reduced by 50 million bushels, imports by 5 million bushels and there were no changes made to export numbers. These adjustments resulted in an increase in U.S. corn carryout of 55 million to 1.781 billion bushels which was slightly above the range expected by the trade. The latest U.S. season-average corn price for 2018/99 is forecast at $3.25 to $3.95 per bushel.
U.S. soybean supply and demand were both unchanged from November leaving a projected carryout of a record 0.955 billion bushels. The latest U.S. season-average soybean price for 2018/19 is forecast at $7.85 to $9.35 per bushel.
World ending stocks for corn, soybeans and wheat all increased which was not expected by the trade which was looking for little-to-no adjustments.
South American production estimates saw little change from the November report. One change did come in the Brazilian soybean estimate which was raised by 1.5 million tons due to favorable weather conditions in some key growing regions.
2018-19 USDA U.S. Grain Carryout (billion bu.)
USDA Dec Average Trade USDA Nov
2018-19 Trade Est. Range 2018-19
Corn 1.781 1.738 1.700-1.790 1.736
Soybeans 0.955 0.945 0.875-0.975 0.955
Wheat 0.974 0.956 0.924-0.984 0.949
2018-19 USDA World Grain Carryout (million tons)
USDA Dec Average Trade USDA Nov
2018-19 Trade Est. Range 2018-19
Corn 308.80 307.59 304.19-310.00 307.51
Soybeans 115.33 112.79 110.80-114.00 112.08
Wheat 268.10 266.79 264.32.270.00 266.71
2018-19 USDA South American Production (million tons)
USDA Dec Average Trade USDA Nov
2018-19 Trade Est. Range 2018-19
ARG Corn 42.50 42.43 41.00-43.00 42.50
AGR Soy 55.50 55.72 55.50-57.00 55.50
BRZ Corn 94.50 94.41 90.00-96.00 94.50
BRZ Soy 122.00 120.88 119.00-122.00 120.50
Talk continues that China will soon be buying both U.S. corn and ethanol. This would alleviate some of the concern with the USDA’s 50 million bushel reduction in corn usage for ethanol production. There are also suspicions that the Chinese are planning a massive build-up their ethanol production facilities, this could ultimately mean more U.S. corn bushels being shipped to China. With all of the attention currently focused on where negotiations are headed with China, production estimates out of South America have received little consideration by the USDA. In this report South American production was unchanged but right now Argentina is projected to produce 42.5 MMT’s this year vs 32.0 MMT’s a year ago. Brazil is also expected to see an increase from 82.0 MMT’s last year to 94.5 MMT’s this season.
The White House has announced that it is delaying the second round of payments from the $12 billion tariff aid package for farmers. President Trump stated that China was buying a “tremendous amount” of beans and that trade talks with Beijing were already underway over the phone, with more meetings likely between U.S. and Chinese officials. The delay is reportedly caused by the optimism surrounding the trade talks and the reluctance of the Office of Management and Budget to spend the money. Negotiations on the payment rate for the second round of payments has been going on for weeks between the White House Budget Office and the USDA and the USDA remains hopeful that a payment will be agreed to before the end of the year.
Reuters reported just a short time ago that China is making its first purchase of U.S. soybeans since the trade truce began. Chinese state-owned companies purchased at least 500,000 tonnes of U.S. soybeans today. President Trump told Reuters in an interview, “They’re buying tremendous amounts of soybeans. They’re back in the market…I just heard today that they’re buying tremendous amounts of soybeans. They are starting just now.” (I have also now read where the purchased amount is upwards of 30 cargos for shipment between January and March out of the U.S. Pacific Northwest.) With all of the current unknowns in the soybean sector the USDA elected to make no balance sheet adjustments in their December estimates until they learn more. They did increase the soybean global balance sheet and raised Brazil’s projected soybean production by +1.5 MMT’s which is another all-time record of 122.0 MMT’s. Weather has been very cooperative to producers in Brazil this season but there are beginning to be a few dry weather concern popping up but these area’s may not be big enough or severe enough to make a significant enough difference. The Australian Bureau of Meteorology has issued alert that there is now a 70% chance of an El Niño developing later this winter. If this weather pattern were to form it could add risk to the growing crops in South America if it develops in the next few weeks.
Everyone spends a lot of time discussing and analyzing every decision made by Chinese leaders. Although, when you consider the fact that One-in-six people on Earth live in China it’s easy to understand the magnitude of influence and importance this one nation has on every other country in the world. To put this immense country into perspective, Visual Capitalist has developed the map below that compares Chinese provinces with equivalent sized countries in terms of population.
Temperatures have moderated across the Midwest offering a well-earned break from below-normal temps that have been present for several weeks. There is a new storm system forming that will move over the central U.S. by Thursday and into the eastern portion of the country by the weekend. Precipitation from this system is expected to be very limited across northern regions bringing some light accumulations of ice and snow. Heavy rainfall is likely in portions of the South with the threat of a few thunderstorms turning severe.
