Morning Commentary

Dec corn up 2 at $3.7225

Nov beans up 3 ¼ at $8.7625

The DOW is up

USD is stronger

Crude oil up $.62 at $56.30

Good morning,

Crazy “variability” continues to be the theme… Crop tour participants across the U.S. are all reporting the same thing, crops that are at wildly different stages of growth, even plants within the same field are at different stages of maturation. The Pro Farmer Crop Tour reported yield estimates and findings last night for Western Iowa and Illinois. The Western Iowa data was completed for Districts 1,4, and 7, the remaining portions of Iowa will be completed today. From what I can gather, District 1 was a bit worse than last year, but District 4 and 7 were a bit better than last year. To this point, the tour is showing Iowa overall a bit better. Illinois is a bird of an entirely different color. The tour reported an average corn yield of 171.17 bushels per acre vs. 192.63 reported last year.

Soybean  prices continue to consolidate. I’m not sure if that’s good or bad. The Pro Farmer Crop Tour posted results for a portion of Iowa and all of Illinois. The tour reported results in Iowa for Districts 1,4 and 7. Interestingly, opposite the corn results, District 4 and 7 showed fewer pod counts than last year, while District 1 showed slightly improved pod counts. All of Iowa’s results are scheduled to be released today. The tour through Illinois produced an average pod-count of 997.68 vs. 1328.91 average last year. 

Iowa Congresswoman Cindy Axne and others are calling for a federal investigation into the waiver process that allows oil refineries to bypass the regulations for mixing renewable fuels with their products. Axne says the EPA’s recent granting of 31 Renewable Fuel Standard waivers to small refineries puts the total at “85 handouts to the oil sector.” “What that’s done is destroy over four billion gallons of biofuel demand–which means that’s a market for more than one-point-five billion bushels of American corn,” Axne says. Axne says the waivers are also having an adverse effect on the biofuel industry, itself. Officials with POET announced Tuesday that it would idle a 92-million-gallon ethanol plant in Cloverdale, Indiana as a result of the waivers.

The U.S. Agriculture Department said on Wednesday it had pulled all staff from an annual crop tour after an employee was threatened, and three sources said the threat came over the phone from an angry farmer. Farmers have complained this month that a government crop report did not reflect damage from historic flooding this spring. They are also frustrated over unsold crops due to the trade war with China, falling farm income, and tighter credit conditions. Lance Honig, crops chief at the USDA’s National Agricultural Statistics Service, and other USDA staffers left the privately-run Pro Farmer tour and police will be present on upcoming stops of the trip, which ends on Thursday. (Reuters)

 

Morning Commentary

Dec corn up 1 ¼ at $3.70

Nov beans up 4 ¼ at $8.725

The DOW is up

USD is weaker

Crude oil up $.58 at $56.71

Good morning,

Corn bulls struggle to find much help! Weather has become more competitive, especially in areas that were needing a drink. At the same time demand for both exports and ethanol are being more heavily debated. Export competition is more challenging as the South American currency has depreciated heavily against the U,.S. dollar. Corn used for ethanol is also being more heavily debated following the recent waivers given to the small refineries. At the same time, Poet announced yesterday that it will idle production at its bioprocessing facility in Cloverdale, Indiana. The process to idle the plant will take several weeks, after which the plant will cease processing of over 30 million bushels of corn annually.  Last night, the Pro Farmer Tour presented an average corn yield for Indiana at 161.46 bushels per acre vs. the current USDA estimate of 166 bushels per acre.  The tour also released its estimate for Nebraska last night, reporting an average yield of 172.55 bushels per acre vs, the current USDA yield of 186 bushels per acre.

Soybean bulls are battling a similar set of circumstance to corn, i.e. improved U.S., weather, questionable demand, and questionable production. The Pro Farmer Crop Tour released their results for Indiana and Nebraska last night. They estimated the Nebraska crop with a 1,210.83 pod count. The USDA currently has the Nebraska yield estimated at 58 bushels per acre vs. 59 bushels per acre the previous year. The crop in Indiana this year was reported to have averaged 923.94 pods vs. the 1,311 pods averaged last year. The USDA has the Indiana crop currently estimated at 50 bushels per acre vs. the 58.5 estimated last year.

Cattle traders are wondering what the near-term future holds for cattle markets. The event of the past week certainly caught the industry at an awkward time where numbers are historically large, leverage has been given up from expanding bunk space relative to tightening packing capacity and exposure to extreme risk for cattle feeders with less than ideal risk management in place. Volatility is most likely a certain player going forward. The back and forth action of the speculative community buying the early action and selling it late when there is no follow through will give way to commercial players selling at levels that may not provide satisfactory margin and then exiting when there is any hope of upside potential. This is not necessarily a unique situation but a very challenging one. As mentioned last week, it will be really important to make high quality decisions for you and your operation during these times. Cash traded 5.00-6.00/CWT lower on very light volume last week. Basis is strong versus the Aug19 LC contract and might support the front spreads but the uncertainty with Tyson’s Finney County plant is keeping a lid on the nearby contracts versus the deferred contracts. Show lists for cattle to be sold this week were sharply higher with gains being made in all feeding regions. Much was made of last week’s estimated slaughter being 651,000 head. This was slightly larger than the previous week and just under this time a year ago. The quandary for many was how this was possible with the reduced capacity from a large fed beef plant being dark. Many things could be pointed out here including the potential for revisions later on. However, I think this was the short-term hope and expectation from the industry. It will be important for the packing sector to flex every way possible in order for us to smoothly navigate the next few months. The futures charts obviously look concerning with the recent declines. An optimist would point out oversold conditions and gaps to be filled as upside targets. The less optimistic might give a nod to the lack of managed money participation and little willingness to follow through on rallies as of late. Trey Warnock – Amarillo Brokerage Company

Pig breeders in China who have managed to keep fatal African swine fever off their farms since outbreaks began a year ago are now set to reap rewards, with some in line for record profits of $200 per hog thanks to soaring prices. The virus has reached every province of the world’s top pork producer. The pig herd shrank a third in July from the same month a year ago, according to the Ministry of Agriculture and Rural Affairs, though many observers believe half the herd is already gone. Since June, slumping production has triggered a price surge. National average hog prices passed the 2016 record of 21 yuan per kilogram earlier this month to hit 24.6 yuan ($3.48) per kg on Aug. 19, according to data from Shanghai JC Intelligence Co Ltd. The high prices will eat into profits at processors like WH Group, which last week reported a -17% decline in first half profits and warned that prices are set to keep climbing(Source: Thomson Reuters) 

 

Morning Commentary

Dec corn up 5 at $3.795

Nov beans up 6 ¼ at $8.7275

The DOW is up

USD is stronger

Crude oil down $.19 at $56.02

Good morning,

Corn  traders continue to debate yield and acres! The USDA lowered its weekly crop-condition estimate by -1% to 56% rated “Good-to-Excellent”. The USDA also estimates just 55% of the U.S. crop is in the “dough stage” vs. 83% last year at this time. The USDA also estimates just 15% of the crop is “dented” vs. the 5-year average of 30% by this date. Bottom-line, the crop is extremely late.  The Pro Farmer Crop Tour finished Day #1 with most tour participants talking about very immature crops and abandoned fields. There was also some talk about disease out on the Western leg of the tour. Eastern tour participants were talking about extremely immature crops with many fields just in the “milk stage”. There was also some talk of rootworm out east. The tour released results last night that estimates the Ohio yield at 154.35 bushels per acre vs. the current USDA estimate of 160 bushels per acre. Last year the USDA estimated Ohio’s yield at 187 bushels per acre vs. the Pro Farmer Crop Tour estimate last year for Ohio at 179.57 bushels per acre.  The Western leg of the tour estimates the South Dakota average yield at 154.08 bushels per acre vs. the current USDA estimate of 157 bushels per acre. Since June 17th, total open interest is down 122,000 lots while prices have shed 94 cents. The trade count showed the fund selling 9,500 corn yesterday. They’re now thought to be short 1,300 lots. If realized, funds have held a short position during the month of August for four straight years. In the previous three years, the US produced a large corn crop. The short term trend for December corn is bearish. Sustained action below 388 leaves the market poised for a test of contract lows (363.75). A close over 403.25 is the minimum needed to provide fresh upside targets.

Soybean  traders are heavily debating U.S. crop conditions. Similar to corn, the USDA lowered the crop-condition estimate by -1% to now show just 53% of the U.S. crop rated “Good-to-Excellent” vs. 65% this time last year. The USDA is also suggesting that over +7.5 million soybean acres are still yet to bloom, confirming that the crop is running way behind schedule. States running the furthest behind appear to be Michigan, Indiana, Ohio, Missouri, Kentucky, and South Dakota, all showing less than 60% of their crop “setting pods”. Illinois is showing just 67% setting pods vs. the historical average of 88% by this date. Iowa shows just 71% setting pods vs. the 89% average. As a whole, the USDA is estimating that just 68% of the U.S. crop is “setting pods” vs. the 85% average. The Pro Farmer Crop Tour on Day #1 also reported seeing a lot of immature fields. The Eastern leg of the tour showed Ohio pod counts at around 764 pods per 3×3’ square area vs. a pod count average of 1,248 last year, which puts this year’s pod count off by about -38% compared to last year. The average settlement price for Nov beans since August 13th is 876.75. With the trade count showing the fund having sold 6,000 beans yesterday, they’re now thought to be short 93,500 lots. Going back to 2006, funds are estimated to be holding their second largest short position during the month of August. The only year funds were shorter was the week of August 14, 2018. The short term trend for November beans is neutral-negative. Stable action outside 870.5-884.25 should provide fresh trending targets.

The U.S. Department of Agriculture (USDA) announced that producers of nearly 17,000 dairy operations have signed up for the Dairy Margin Coverage (DMC) program since signup opened June 17. Producers interested in 2019 coverage must sign up before Sept. 20, 2019. DMC offers protection to dairy producers when the difference between the all-milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer. In June, when the DMC signup was announced, Secretary Perdue said, “For many smaller dairies, the choice is probably a no-brainer as the retroactive coverage through January has already assured them that the 2019 payments will exceed the required premiums.” To date, more than 60 percent of dairies with established production histories have enrolled in the program. Wisconsin has seen the most participants with more than 4,832 dairy operations, followed by Minnesota (1,865), New York (1,779), Pennsylvania (1,511) and Michigan (702).

 

Morning Commentary

Dec corn up 2 at $3.73

Nov beans up 5 at $8.7575

The DOW is up

USD is stronger

Crude oil up $.39 at $54.86

Good morning,

Corn  prices may have temporarily stabilized as the margin call gods seem content for the moment having wreaked enough havoc. Bears continue to point to the USDA’s burdensome balance sheet outlook and mostly cooperative weather in the nearby forecast. Bulls simply feel like they are out of bullets as the USDA continues to squash all talk of sub-80 million harvested acres and a sub-165 yield average. Until the USDA or some other influential sources start to turn that logic around, it’s going to be tough for the bulls to string together and extended uphill run. Don’t forget, we have the Pro Farmer Crop Tour starting up next week. I suspect their field results are going to be of major interest to many inside the trade. For the first time since August 8th, the trade count showed the fund buying corn yesterday (2,000 lots). Funds are thought to be short 35,200 lots. In tonight’s COT report, funds are expected to be shown short 14,200 lots. The short term trend for December corn is bearish but the market is at an oversold extreme. Sustained action below 388 leaves the market poised for a test of contract lows (363.75). A close over 403.25 is the minimum needed to provide fresh upside targets.

Soybean traders continue to battle it out!  Bears are armed fairly heavily with talk of ongoing Chinese trade difficulties, the continued spread of Africans. Swine Fever, stronger competition from South America, a strong U.S. dollar, and mostly cooperative weather here in the U.S. Bulls, on the other hand, are talking about significantly fewer acres and a lot more late-planted acres. NOPA showed a much better than expected crush number yesterday that might help ease some of the talks about ongoing demand destruction. Perhaps the USDA might have to backpedal a bit on their recent crush demand reduction? The trade count had the fund selling 5,000 beans yesterday. Funds are now thought to be short 85,300 lots. Funds are expected to be reported short 73,300 contracts in tonight’s COT report. If realized, funds are holding their largest short position since early June. The short term trend for November beans is neutral. Stable action outside 870.5-893.5 should provide fresh trending targets.

Brazil is “revisiting” its soybean output estimates for the 2018 and 2019 crop seasons, an official told Reuters, as discrepancies with private-sector estimates raised doubts about the accuracy of the government’s supply and demand figures. Guilherme Bastos, director of information and public policy at food statistics agency Conab, mentioned a hefty soybean export forecast from oilseeds association Abiove as one factor triggering the ongoing revision. “The balance of supply and demand is tight, there is no space for exporting 72 million tonnes of soybeans” this year, Bastos said by phone, referring to Abiove’s view. “The balance of supply and demand is tight, there is no space for exporting 72 million tonnes of soybeans” this year, Bastos said by phone, referring to Abiove’s view. Abiove, which represents trading firms like Cargill and Bunge, estimates domestic soybean production more than 6 million tonnes above the government’s in the 2017/2018 and 2018/2019 seasons combined. (Source: Reuters)

Tyson, one of the country’s largest meatpackers, reportedly petitioned the Trump administration to reduce the number of government inspectors at its factory in Holcomb, Kansas, which recently sustained heavy damage from a fire. In the request, Tyson Fresh Meats proposes using its own employees, rather than independent Department of Agriculture inspectors, to take a first look at the meat being prepared. Tyson’s employees would identify unsuitable beef carcasses and trim away defects, before USDA inspectors check every carcass that is allowed to go forward for disease and contamination, Tyson said in its March waiver proposal, which was obtained by an advocacy group through a Freedom of Information Act request. The shift would allow Tyson to speed up its factory line. The USDA is considering the request — the first of its kind for a beef plant — as part of a broader overhaul of beef inspections that aims to shift quality control from government inspectors to factory workers, while focusing the USDA’s attention on more targeted safety checks. (Source: NBC)

 

Morning Commentary

Dec corn up 3 at $3.7325

Nov beans up 2 ¼ at $8.8025

The DOW is up

USD is weaker

Crude oil down $.27 at $54.96

Good morning,

Corn  bulls continue to lick their wounds following a massively depressive USDA report on Monday. Corn prices have tumbled -40 cents in the blink of an eye. Bears are arguing that U.S. weather has also improved to some degree with more widespread rainfall forecast across many portions of the western corn belt. Bulls are pointing to ongoing concerns about dry weather in the eastern corn belt. There’s also conflicting debates and discussions floating around inside the trade regarding the recent fallout in the Argentine peso. The short term trend for December corn is bearish but the market is oversold. However, the market is poised for a test of contract lows (363.75). Sustained action below 388 maintains strong bear forces. A close over 403.5 is the minimum needed to provide fresh upside targets.

Soybean  prices have essentially traded between $8.50 and $9.50 per bushel since early-March. The recent round of Chinese trade uncertainty has ratcheted that range down to between $8.50 and $9.00 per bushel, basically shaving off the upper-end. There’s some hope that President Trump’s recent gesture of good-faith and choice not to move forward with the next round of tariffs, will be reciprocated by the Chinese and perhaps lead to the purchase of U.S. soybeans. The trade count had the fund selling 7,000 beans yesterday. Funds are now thought to be short 80,300 lots. The short term trend for November beans is neutral positive. The market is poised to trade 902-905. Stable action over 905 confirms a bottom. Closing under 870.5 warns of a correction.

Illinois Republican Congressman Rodney Davis, speaking with Brownfield Ag News, says convincing Speaker Nancy Pelosi to bring the USMCA up for a vote is the most important issue to be addressed in Washington DC. Illinois Republican Congressman Rodney Davis says convincing Speaker Nancy Pelosi to bring the USMCA up for a vote is the most important issue to be addressed in Washington DC. Illinois Democratic Congresswoman Cheri Bustos tells Brownfield  that Trade Representative Robert Lighthizer and Speaker Pelosi have been good actors throughout the process. “I think whether you are a democrat or a republican, we want to pass this, but we’ve got to make sure that not only does it look after and do right by the family farmer, but it also has to do right by the American worker. If we can do those two things then I think we will end up in a good place.” Commodity and livestock group representatives also expressed the importance of the USMCA for their respective industries to Brownfield at the Illinois State Fair. (Source: Brownfield Ag News

 

Morning Commentary

Sept corn up 2 ½ at $4.09

Nov beans up 4 ½ at $8.7125

The DOW is up

USD is stronger

Crude oil up $1.31 at $52.40

Good morning,

Corn  traders are gearing up for Monday’s highly anticipated USDA report. Technically it looks like the market might be stuck in a trading range between $4.00 and $4.25 per bushel in the DEC19 contract until the updated data is released. Most in the trade are thinking the the USDA is going to lower their total production estimate from its current 13.875 billion bushels. How much lower is the magic question? The USDA is currently forecasting a 166 bushel per acre yield average, which is -10.4 bushels per acre lower than last year. The trade is thinking the yield estimate could be lowered even further down to 164.7 bushels per acre. Nevertheless, since June 27th, open interest has risen 92,700 lots while prices have fallen 37 cents. The average price during that timeframe is 430. The trade count showed the fund buying 6,500 corn yesterday. They’re now thought to be long 53,100 lots. The short term trend for December corn is neutral negative. A close under 397.25 signals a return to contract lows. Sustained action above 423 is the minimum needed to provide fresh upside targets. Following two days of flagging action, overnight strength suggests the market is attempting to build on Monday’s spike recovery.

Soybean  prices currently seem comfortable trading in the $8.50 to $8.75 range in the NOV19 contract. There’s still a ton of longer-term uncertainty surrounding Chinese trade, African Swine Fever and upcoming U.S. weather. Nearby however, all eyes are going to be on Monday’s USDA report. The USDA is currently forecasting an average yield of 48.5 bushels per acre vs. 51.6 last year. The trade seems to be thinking the USDA’s yield estimate will get lowered to 47.5 bushels per acre. Perhaps an even more uncertain question will be harvested acres? The USDA is currently forecasting 79.3 million harvested acres. Many inside the market are now thinking the harvested acreage number could move higher, perhaps closer to 80 million, on more late-planted acres. The short term trend for November beans is bearish. A close under 853.5 signals a fresh wave down. Stable action over 886 is the minimum needed to suggest renewed rally attempts. Following two days of flagging action, overnight strength suggests the market is attempting to build on Monday’s spike recovery.

Glencore PLC’s first-half earnings fell by a third and the commodities giant said it’s closing one of its largest copper and cobalt mines as concerns over the global economy and the trade war between the U.S. and China hit commodity prices. Glencore was expected to benefit from a revolution in electric vehicles as the metal is a key ingredient in the lithium-ion batteries that power them. But the demand for the biggest user of this metal such as laptops and tablets has waned, while supply has increased, leading to a 58% fall in cobalt’s price in the first half of 2019 compared with the same period last year.

 

Morning Commentary

Sept corn up ½ at $4.045

Nov beans up 1 at $8.6675

The DOW is down

USD is weaker

Crude oil down

Good morning,

Corn  traders continue to debate supply and demand. Bulls are talking about possible production setbacks associated with a late-planted U.S. crop and weather abnormalities in many key growing regions. Bears are pointing to ongoing demand headwinds associated with exports, ethanol and feed usage. Argentina, Brazil and Ukraine are producing many more bushels than several years ago and their currencies being heavily devalued compared to the U.S. dollar is making export competition extremely stiff. There’s also been a ton of talk that the oversupply of wheat in the global marketplace has been creating a headwind for corn. The short term trend for December corn is negative. A close under 397.25 signals a return to contract lows. Sustained action above 423 is the minimum needed to provide fresh upside targets.

Soybean  traders continue to debate “Weather vs. Washington”. Bulls are argue continued concerns about U.S. weather and a late-planted crop that could eventually run into more serious headwinds. On the flip side, bears argue that Washington is willing to wage a deeper war with China, who happens to be the worlds #1 buyer of soybeans. The trade count showed the fund selling 3,500 beans yesterday. With Tuesday marking the cutoff for Friday’s COT report, they’re now thought to be short 87,500 lots. The short term trend for November beans is bearish. A close under 853.5 signals a fresh wave down. Stable action over 886 is the minimum needed to suggest renewed rally attempts.

USDA recently released fresh ag-trade data, which reflected slumping exports of crops to China. From October through June, exports totaled just 8.7 million metric tons, which is a huge decrease from 25 MMT over the same period in fiscal 2018. That represents a difference of $6.5 billion in sales. Overall, ag exports through June totaled $103 billion, compared with nearly $111 billion at the same point last year. (Source: Politico) 

 

Morning Commentary

Sept corn down 7 at $3.925

Nov beans down 10 ¼ at $8.5825

The DOW is down

USD is weaker

Crude oil down $.85 at $54.81

Good morning,

Corn  remains under pressure as tensions with China continue to escalate. In reality, most all commodities are under pressure on deepening trade fears. Bulls are trying to battle back on talk of increasing U.S. crop stress to the east. Bulls believe the USDA might slightly reduce their weekly crop-condition estimate. Last week the USDA raised U.S. corn crop conditions from 57% of the crop rated GD/EX to 58%. This week they might take that gain away and drop it back down a bit. Last year at this time the crop was rated 72% GD/EX.

Soybean traders continue to battle it out in regards to the “knowns vs. unknowns”. The trade clearly recognizes that the U.S. crop was planted extremely late.  The debate is how many acres were actually planted and how many were planted extremely late? And will there be a significant yield drag on the late-planted acres? The trade recognizes we are in a deep trade dispute with the Chinese. The question is will the fences be mended sooner rather than later or will the divide deepen?

Romania has seen a jump in reported swine fever cases among domestic pig herd with about 300 new outbreaks reported in July, up from about 80 reported cases in June and about 30 cases reported back in January. Bulgaria is also seeing an increase with a reported 18 cases in July. Bulgaria reported its sixth industrial hog farm has been affected with the rampant disease, causing another 8,253 pigs being culled. I’m told in Bulgaria has lost more than 20% of their pigs in the last few weeks. I should mention, Poland’s Pig Breeders and Producers Association warned that the virus poses a threat to the country’s entire pork industry, with even the largest facilities being at risk.  Slovakia reported its first cases of the disease last month. (Source: The Financial Times)  

 

Morning Commentary

Sept corn up 1 ¾ at $4.02

Aug beans down 1 ¾ at $8.6225

The DOW is up

USD is stronger

Crude oil down $1.06 at $57.52

Good morning,

Corn  prices in the DEC19 contract have tumbled over -50 cents from the high posted back on the 15th of July. In other words, in just 12 trading sessions the market has trimmed -50 cents off the price. As a bull that’s extremely hard to swallow, but with little threat of extreme heat and ample moisture in the forecast there’s very little fresh or new to keep the bulls excited. Demand is very suspect with both ethanol and exports being questioned almost every day. There’s was also competition coming in on the feed side when prices started rallying higher. Technically, the market has collapsed, falling below the 50-Day and 100-Day Moving Averages and about to close below the 200-Day Moving Average.

Soybean  bulls have backpedaled on improved weather, perceived lack of any meaningful progress in Chinese trade negotiations and rumors circulating that a Chinese trade delegation will soon be visiting Argentine crushing facilities and meal processing plants. Remember, Argentina has tried for years to gain access to the Chinese meal market but with little success.

Bunge’s second-quarter results topped Wall Street expectations as the company’s investment in Beyond Meat continued to outperform, which has surged more than 780% since its May IPO. I’m told, net income available to the shareholders was $205 million, or $1.43 per share. Remember, in the second quarter a year ago Bungee came out with a loss of $21 million. From what I understand, Bunge’s agribusiness unit posted a higher profit for the quarter on timing effects from soybean crushing of about $70 million, which the company said would reverse in the third quarter.

 

Morning Commentary

Sept corn down 3 ¼ at $4.08

Aug beans down 5 ¼ at $8.7353

The DOW is up

USD is stronger

Crude oil up $.56 at $58.61

Good morning,

Corn  bulls continue to struggle as U.S. weather is abnormally cooperative for late-July into early-August. Take a look at the 6-10 day forecast. It’s tough to get overly bullish the corn market with such a good forecast.  Being long old crop bushels that can be sold for $4 is very risky. The short term trend for December corn is neutral-negative. Rallies capped at 437 leaves the market vulnerable to a drop to 418.25 perhaps 405.25. Stable action over 447.5 is the minimum needed to provide fresh upside targets.

Soybean  bulls backpedal a bit on comments from Washington that a U.S.-China trade deal could still be well off in the distance. Bulls are hoping it’s just more political positioning or trade jockeying by U.S. leaders, while bears believe there’s a lot of truth to the statements and that a trade deal may not happen until much closer to the 2020 Presidential Election or perhaps not at all during this current presidential term. I should also note, there’s more talk circulating from Rabobank that China’s pork herd is expected to be about half it’s previous size by the end of 2019. Most estimates and numbers indicate that China’s herd has already been shrunk by almost 40% and that another 10% to 15% reduction is almost certain between no and yearend as fresh outbreaks continue to be reported. In other words, China’s meal demand my continue to shrink, easing the overall need for large quantities of U.S. soybeans. The short term trend for November beans is neutral. Stable trade outside 890.25-910.75 is needed to provide fresh trending targets. I expect good support around 880 basis November.

EPA Administrator Andrew Wheeler’s defended his agency’s expanded use of waivers exempting refineries from the nation’s biofuel law during a closed-door meeting with farm state senators last week, arguing the program has had no negative impact on ethanol demand. His comments are a sign he may resist an overhaul of the so-called Small Refinery Exemption program, which President Donald Trump last month ordered members of his Cabinet to review here based on complaints from the corn lobby.

China’s swine herd could take years to get back to pre-ASF levels of over 440,000 head, if it ever does, but as the industry begins to look ahead to what it will take to eradicate the disease and begin the rebuilding process there are a ton of considerations. All of which could have a lasting effect on China’s herds, world production, demand, and prices for those operations still in the game. In fact, higher prices are actually a concern at the moment, as it is feared that high pork prices will incentivize many Chinese hog farmers to restock or expand, despite the significant animal health risks. 

Inconsistencies between Chinese policies and actions are also a concern as it is strongly believed that the number of reported cases is well understated due to provincial governments refusing to report outbreaks to higher-level authorities in order to avoid the appearance of not controlling ASF. Unfortunately, this can lead to improper disposal of infected swine allowing the disease to possibly remain. I should add, despite the significant decrease in the number of World Organization for AnimalHealth reports, ASF outbreaks continue to appear in distant areas that are creating great uncertainty as to the actual conditions leading to the spread of the disease. This lack of accurate reporting is one of the greatest obstacles to controlling the disease and implementing effective countermeasures.

USDA’s FAS recently released a GAIN report which focused on the Chinese swine herd and its uncertain future. For now, from a supply standpoint, it was determined there will be sufficient animal protein supplies to meet Chinese demand, despite an anticipated 21% herd reduction in 2019. Looking forward, a s pork supplies tighten through the second half of 2019 and demand strengthens near the Chinese New Year in January 2020, pork and all other animal protein prices will rise and imports will increase. It’s believed that in order for the Chinese swine herd to recover, a number of factors will have to be addressed, which we share below. (Source: gain.fas.usda, statista.com)

Development of an Effective Vaccine: Development and distribution of an effective vaccine against ASF could advance the timetable for the recovery of the swine herd. However, it’s unlikely that a vaccine will be prepared by 2020 and will not have an effect on next year’s situation. Keep in mind, it’s important to watch for announcements about ASF vaccines that are the result of peer-reviewed research and not a lone ranger.

Increasing Prices Incentivize Restocking: Rising swine prices provide strong financial motivation for many farmers to attempt to raise hogs, despite the high risks from ASF. In the first half of 2019, prices have held fairly stable as demand fell alongside supply. When live swine prices start to rise more rapidly, even more, conservative operations may try to restock. Each province may have its own price dynamics. Rising live swine prices are generally indicative of restocking, whereas decreasing prices indicate that farmers are liquidating herds due to ASF outbreaks, depressing prices.

Industry Restructuring:  Small farmers may be able to take advantage of short-term factors and generate high profits, but it will be modern large-scale integrated facilities that will be more sustainable over the long-term. Keep in mind, it will be the speed and manner in which this consolidation happens that will influence the trajectory of China’s recovery from ASF. Also, due to ASF, China is moving away from shipping live hogs to shipping chilled carcasses, primarily to manage the risk of shipping live animals across the country. For this to be sustainable, China will need to build additional slaughter capacity closer to the new production facilities and add significant cold-chain capacity. Once again, it will be the speed at which the industry is able to implement these restructurings that will affect when China is able to stabilize production.

Chinese Government Policy Response:  Implementing and consistently executing responsible policies to detect, monitor, and control the spread of African Swine Fever is a critical first step. Policy announcements that lack sufficient national government hinder efforts to control the disease. For example, when MARA first announced a subsidy program for culled swine, the per-head subsidy was set at $120 USD. While the subsidy was later increased to $180 USD, the local governments were left responsible for funding a large portion of the subsidy bills and, reportedly, lacked the funds to do so. As a result, most farmers don’t expect to receive subsidies for culled animals, undermining their incentive to follow the stated regulations.

Effective Biosecurity Implementation: Biosecurity measures can run up into the hundreds of thousands of dollars for medium to large operations, and even if the costs can be overcome, it will require widespread education and implementation to succeed. Hopefully, China’s recent announcement to subsidize interest payments for short-term loans to swine farmers will likely have a positive effect on biosecurity investment by large farms, speeding the pace of recovery.

Availability of Imports: Based on relatively high worldwide volumes of pork, it’s possible for China to dramatically increase its imports in 2019. However, non-price related disruptions to the market can affect the availability of imports, thus driving up prices. For example, China recently suspended Canadian meat imports.

Available Replacement Animal Protein: Replacing pork with other animal proteins relies on the ability to increase the supply of these proteins. Since beef supplies are also expected to decrease, it will require the increase to come from imports. as it will for pork as well.  Poultry could see additional supply come from domestic increases as imports account for less than 4% of total consumption.

 

 

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