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Strong Export Numbers but an Unfavorable Outlook for Ethanol

Update for December 18th, 2020

Strong export sales have helped to strengthen prices and seem to have traders comfortable with their long positions as we approach year end and U.S. exporters report the best book of corn and soybean export sales on record. Reuters ran an interesting article regarding China and their significant increase in corn imports this year, below is a portion of that article:

China in recent years has been notoriously absent from global corn trade, particularly when compared with its consumption rates, in its efforts to bolster food security and maintain self-sufficiency. However, Chinese corn prices surged this year as stockpiles dwindled, forcing the country to scoop up large quantities of foreign corn, especially from the United States. China is now on the path to becoming the top importer of the yellow grain next year. The question now is whether the Asian country plans to permanently cement itself as a top corn importer, whether the government will attempt to boost domestic production, a combination of both or none of the above. China’s pig and sow herd had recovered to more than 90% of normal levels as of last month after having plunged by around 40% a little more than a year ago. Feed demand has returned, but that is not the only reason China has stepped up grain and oilseed imports.

Ethanol and gasoline usage remain an ongoing concern for future corn demand as stock levels build because of reduced travel from ongoing Covid-19 restriction and shutdowns. This has tanked forward ethanol production margins to the lowest levels ever seen, excluding those from last spring. As a result, ethanol plants have begun to lower production, a decline that may continue and worsen in the coming months. The hope is that as vaccination rates increase, life will return to normal by sometime late next summer.

Soybean demand is helping to drive prices higher as better than expected export sales and NOPA crush numbers were reported earlier this week. Export sales of 922,300 MT were reported which is an increase of 62% on the week and a 20% increase compared to the 4-week average. A lower U.S. Dollar, increasing concerns of global food inflation and talk of additional Chinese purchases lasting into February-sales that typically belong to new crop South American production-all are combining to keep prices propped up.

The Buenos Aires Grain Exchange reports that 68% of the soybean crop in Argentina has been planted, this is 2.5% below last year due to persisting dry conditions that have slowed planting progress. The outlook for Argentine weather improves next week as a return to a more normal rainfall pattern is expected next week. Forecasts for Brazil are expected to improve by the middle of next week with near-normal rainfall expected between December 24th-30th when many of the largest soybean growing regions are expected to receive at least 2 inches of rainfall. This will help to relieve some of the crop stress, but soil moisture will remain well below normal for most of the country. The 3 maps below show the predicted rainfall for the 1-3-day period, the 4-7-day period and the 8-15-day period.

Marty Foreman, Ag Economist with the University of Missouri told Brownfield Ag that the drought that started in the western U.S. is creeping its way eastward into key corn growing states of Iowa, Illinois, and Indiana-which is likely to impact our markets in 2021. Ben Brown, Ag Economist with Ohio State University agrees and says that acreage for 2021 will be impacted by acres returning from prevent plant in hard-hit states a year ago across the eastern Corn Belt. He stated, “Last year, when the rest of the country was perfect planting conditions, getting ahead of pace for planting, the eastern Corn Belt – Ohio, Indiana, Michigan – we were behind. So, when I look at where we’re at now the fall of 2020 is really shaping up to get us caught back up to that.” He believes the current drought across the U.S. is likely going to increase the country’s “total pie” of acres for the 2021 season.

There appears to be little relief in store for drought ridden regions of the U.S. Plains over the next 2 weeks. Forecasts show that the driest areas of the southwest, Northern Plains and Southern Plains will see little relief at least through January 3rd forecast period.

The 6-to-10-day outlook from NOAA shows a dry and warm pattern is expected through the Christmas holiday for the U.S. Corn Belt and regions on west.

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