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,

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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