Demand is not rationed

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Even with high priced commodity values we have yet to see a significant decline in demand. This is especially the case in the interior market where favorable processing margins are keeping end user demand elevated. Typically we see commodity demand wane when the markets rally, but high returns are preventing this from happening. In fact, several reports are surfacing of buyers posting incentives to entice deliveries which has pushed cash corn above the $8.00 mark in some regions. Consumer demand is not backing down either which is also favoring returns, primarily in the livestock sector.

Not only is the US ethanol industry seeing elevated domestic consumption but stands a good chance of elevated exports as well. The United States already exports a large volume of ethanol but given the price spread between the US and its leading competitor Brazil. Right now this spread favors the US by 60 cents per gallon. This spread will likely narrow when the Safrinha crop becomes available in Brazil this summer, but the US does stand a chance of elevated exports from now until then.

Even with elevated export sales trade is starting to show some concern over actual loadings. With 19 weeks left in the marketing year corn loadings are at 50% of the USDA yearly forecast. This raises the bar for some lofty needs in the next several weeks to prevent either late season cancellations or a rolling of purchases from old crop to new next year. There is less concern on the soybeans as inspections are at 78% of the yearly estimated total, but this is still 9% behind last year’s pace.

Another concern in the market right now is the spread between the United States and other commodity suppliers in the global market, especially on corn. At the present time corn out of Argentina is being offered at a $1.25 per bushel discount to the United States for May and June shipment. Corn out of Brazil is at a 30 cents discount to the US for May and a 70 cents discount for June. South American corn becomes more expensive after June though which is when the Us is expected to see elevated export interest.

One importer that has backed away from the global market is China. In the month of March Chinese soybean imports declined by 18% as the country used more of its domestic reserves to avoid Covid contamination. China also reduced its meat imports by 42% in March as it tried to consume more domestic pork in an effort to support prices. There are thoughts this shift in demand has caused voids in government reserves though that much now be made up for with elevated purchases.

Not only has Covid affected commodity flow in China, but it could easily be an issue for the upcoming planting season. For one, China needs to get seed and fertilizer to areas of demand and this movement is being hindered by travel restrictions. Even where some of these have relaxed it will take several days of quarantine to move across boundaries where infections have been reported. Another issue is simply getting farm workers to where they are needed, and even finding ones who are willing to work right now is an obstacle.

Crop scouts in Brazil have started to leave their soybean production numbers unchanged given the near completion of harvest, but we are seeing alterations to the country’s corn production. The USDA projected Brazil’s corn crop at 116 million metric tons (mmt) in its latest production forecast. The attaché in Brazil is more optimistic and believes the crop will be closer to 118 mmt, which is 3 mmt larger than its previous forecast. The attaché believes Brazil’s corn yield has been lowered by dry conditions in some regions, but elevated plantings will more than make up for the losses. This will put total Brazilian corn production over 30 mmt larger than last year.

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