Chinese purchases favoring Brazil

By Doug Tenney, Leist Mercantile

Jacob the cat has learned a new trick. My sleep is often interrupted, and when returning to bed I find Jacob has moved to the center, taking advantage of the warm spot I left behind. In the coming months it will take supply or demand surprises to warm producer’s psyche with current corn and soybean prices.

Traders were surprised with the Nov. 8 WASDE report which detailed a decline in the 2024 U.S. soybean yield of 1.4 bushels per acre, now estimated at 51.7 bushels per acre. In addition, soybean ending stocks were reduced by 80 million bushels to 470 million bushels. Within minutes, those two bullish factors were responsible for January 2025 CBOT soybeans quickly spiking double digits higher, reaching $10.44, up 18 cents from the previous day’s close. However, they failed to close above strong resistance at the then 100-day moving average of $10.41, instead closing at $10.30, up just 4 cents on the day. Further examination of that report reveals that soybean demand is shrinking with exports dropping 25 million bushels and the crush declining 15 million bushels. Further cuts in coming months are highly likely. Was the price spike a result of algorithm trading with computers buying soybeans, reading the headlines of lower yield and lower ending stocks? Highly likely. Note to self — failed bullish price action on bullish news negates the bullish news.

The Nov. 8 WASDE Report (supply and demand) detailed China imports of soybeans for the 2024-25 marketing year at 109 million tons. Private analysts are already suggesting 109 million tons is too high, instead reducing their import projections down to 99 million tons. That decline projection comes on the heels of record soybean imports into China during October reaching 8 million tons. China’s hog margins continue to be on the decline, contributing significantly to lower soybean import projections. 

China continues their pace of heavy emphasis on buying soybeans from Brazil while maintaining fewer purchases from the U.S. In recent weeks China has bought U.S. soybeans for January delivery. However, beyond that date, they have been nixing U.S. purchases while favoring Brazil origins. Expect that trend to continue.

China’s economy continues to disappoint, it is not in a robust mode. Its consumers are sitting on mountains of cash with their hands in their pockets, refusing to buy beyond normal necessities. In recent weeks, China’s government has pushed out multiple stimulus packages, hoping to enhance the amount of goods and services consumers are purchasing. Those economic packages are not bearing fruit. In years past, it was common for their economy to grow at 6% or higher. Today, it is struggling to reach an annual growth rate of 3%.

The election of Donald Trump to return to the White House as the 47^th President is creating mountains of uncertainty in the agriculture community. The 2018 Farm Bill has not been replaced by a new farm bill. It seems highly unlikely that a new bill will take place by the end of December which would leave the new Congress with the monumental task of hammering out a new farm bill. Congress is seeing an ever-growing number of senators and House of Representative members who have not yet participated in the crafting and eventual voting on a new bill. Two years ago, at least 40% of the House of Representatives members did not vote on the 2018 Farm Bill. With the Nov. 5 election now behind us, that number is even larger. It could easily be March or later before a new farm bill is completed. Without further Congressional action, the already extended 2018 Farm Bill will end on Dec. 31.

During October and November, the weekly export inspections report detailed that the U.S. was shipping a staggering number of soybeans with exports often reaching 80 million bushels or more. Further examination details that it was common for weekly revisions to take place, increasing the previous week’s number by 3-5 million bushels.

South America weather forecasts mid-November indicates no weather issues into early December. Central and northern Brazil is expected to receive 3-6 inches of rain in that period. In addition, southern Brazil and Argentina will receive normal precipitation with normal daily highs. Bottom line, currently there is not a bullish South America weather scenario.

Producers will be slow sellers of corn during December and into the new year. However, they will be anxious to see corn bins empty by May, avoiding summer quality concerns.

Thought for the day. “Wisdom comes with winters.” – Oscar Wilde.