WASDE is Back (and we did the best we could to find exciting news)…

February 8, 2019 in Commodites and Hedging

By Taylor Ortiz and Eric Oeth

While February 8 USDA WASDE reports were less than thrilling, the team here was beyond exciting for something to focus on so we decided to pick apart a few commodities that still had interesting talking points. Here we go!


The USDA’s reporting on wheat contained a few minor surprises on the global wheat situation – namely, that despite rumors of an imminent slowdown of Russian wheat, the USDA pegged 18/19 wheat exports from Russia a half-million metric tons higher than in December.

The FOB bid for the Black Sea is currently slightly higher than the US HRW 11.5% Gulf bid (see below); whether this translates into increased export business for US wheat – which many have been expecting as Russian supplies become thinner – remains to be seen.

One other minor surprise came from the adjusted export figures as well released today. While the adjusted Russian number isn’t terribly surprising, the fact that 0.7 of the 1.3MMT net increase in estimated global wheat exports for the 18/19 year would be coming from Pakistan, was.

Earlier this week, Pakistan issued a rare tender to export 0.25m tonnes of wheat. As reported in private media and the Grains Report, this export tender could be subsidized by the Pakistani government. Wheat is the main staple in Pakistan, and the government maintains a strong hand in the marketing and trade of the grain. A move towards subsidized exports reflects lessening concerns over inflation and food security in the country.  


The discussion is around corn exports vs. corn usage in the United States. A cooperative told us they are questioning if supply can meet global demand as we see the potential for year-round ethanol blending, improved trade with China, and increased export of corn from Mexico. In addition, in 2018 the EU turned into a net cereal importer for corn for the first time in a decade.

However, within the EU we are keeping our eye on Romania. The World Ag Report published on February 8 highlights Romanian corn as Romania experienced a record yield and now represents 23% of EU corn production.

In 2017-2018, Romania surpassed France as the EU’s largest producer of corn. In addition, this past autumn Swiss-based grain and fertilizer trader Ameropa finished investing and expanding the Chimpex terminal at the Port of Costanta, increasing grain storage by 60%. With Romania having the benefit of the Black Sea, EU policies, and increased technology usage toward yields, it is undoubtedly able to increase its place in global production. Romania may be a thimble in production now, but this is a country worth watching. Besides, currently global corn use is exceeding global supply.


The crop of the year for mainstream news. With focus on Brazil as opposed to China, the World Ag  Report published stated that Brazil soybean production for 2018/19 is estimated at 117.0 mmt down 5mmt or 4% from December and 3% from last year’s record. Harvested area is estimated at 36.1 million hectares, down slightly from December, but up 3% from last year. Our favorite takeaway is the visual the USDA presented on the MODIS Normalized Difference Vegetation Index (NDVI). It demonstrates that vegetation conditions declined in some soybean-growing areas of western Parana, Goias, Mato Grosso du Sul and Mato Grosso. However, in other areas yields are estimated above average.  A majority of Mato Grosso was not affected by drought and received adequate rainfall with yields estimated above average. This caught our eye as we often blanket Brazil as ‘drought land’ these days. This is all available here in case you missed it: https://apps.fas.usda.gov/psdonline/circulars/production.pdf


Brazil, riding a wave of higher production, is slated for record-setting exports this marketing year. Amid global demand increases, and China’s building of cotton stocks, the USDA expects Brazilian cotton exports to reach 1.35 MMT in the current marketing year. This figure would be 6.8% higher than December’s export estimate, and almost a 49% increase from the 17/18 marketing year.

Meanwhile, China, the largest producer, and second-largest importer of cotton, is estimated to have a record  year for yields, alongside slightly lower acreage estimates compared to the prior year. Stocks in the country are low, necessitating imports from, primarily, Brazil; tariffs on American cotton and ongoing concerns over the quality of Indian cotton have made Brazil the buyer of choice in recent months, per the Cotton World Markets and Trade report.

A-Index and U.S. cotton spot prices are almost unchanged in the latest report. Trade is pegged 600,000 bales higher from the December report off of, in addition to stock building in China, higher expected imports from Turkey and Pakistan. At the same time, global production is estimated to have declined by about 300,000 bales.

And that’s the news!

The Soybean Crush and South America – Outlook on Crush Margins and Inclement Weather

January 28, 2019 in Commodites and Hedging

By Eric Oeth

Many analysts have noted the strength of the domestic soybean crush in recent weeks. In many ways, this record-setting crush shouldn’t be surprising, given the size of the soybean harvest, and the ongoing trade dispute with China.

Another angle to all this crushing has to do with crop quality. While many have commented on the weakness of the basis in many areas of the country, much of the weakness has been attributed to the trade dispute.

(Soybean basis map; image courtesy DTNPF)

The long, wet, often-snowy harvest we experienced in 2018 caused moisture and splitting issues for a lot of soybean producers nationwide. While the USDA didn’t significantly revise many of their quality estimates for soybeans late last year, I suspect that with the government just recently re-opened, we could see some fairly significant downward revisions in quality for the bean crop.

So, the record crush we are seeing right now is a consequence of demand overseas drying up, and crops at home getting too wet. In South America, a lot has been made about the poor weather in their early soybean crop, too, and that is going to have some interesting implications in demand for the soy complex.

Brazilian producers jumped headfirst into planting this year in order to capitalize on the trade dispute between the U.S. and China. As you know, a lot of that crop is in danger of loss due to drought. This issue has been supporting soybean futures stateside, and the bullish news coming out of South America doesn’t end there. Argentina, which lost about 12% of its crush in 2018 due to drought, is having the opposite problem this year – heavy rain has caused some acreage loss, and analysts are pegging a smaller crop for the country in the upcoming harvest.

Between the bulls pointing towards weather trouble in South America, and bears pointing towards uncertainties in U.S./Chinese trade negotiations, I’m personally curious to how the weather situation will develop over the coming months (as the trade negotiations are anyone’s guess at this point).

Argentina, despite producing a fraction of the soybeans that Brazil does, crushes much more as a percentage of their crop than the Brazilians do. A vast majority of the soybeans Brazil sends to China, for instance, are crushed in China rather than in Brazil, and much of the crushing capacity in the country is dedicated to producing oil for biodiesel.

 Due to the ample crushing capacity in Argentina (the drought caused some facilities to close or idle), and the fact that they are dealing with rain rather than drought, I see the fundamental situation in the country as somewhat rosier than that of their northerly neighbor. While Argentina is certainly still exporting unprocessed soybeans abroad (they sent $3.3B worth in 2016, mostly to China), it pales in comparison to the $4.14B and $9.95B they export in oil and meal, respectively, and those exports are aimed primarily at non-China Asian destinations and the European Union.

With that, it will be interesting to see how Argentinian exports compare in price to their American counterparts – particularly if the Chinese don’t come back to the table come March  2nd. If U.S. crushing continues at such a strong pace, and no “safety valve” for American beans emerges from a trade deal, we may see more bushels get funneled to crushers for the domestic and export markets.

When the Clock Strikes Midnight…

July 5, 2018 in Commodites and Hedging

Tomorrow, just after midnight, U.S. tariffs will be slapped on $34B worth of Chinese goods – in a move many are calling the opening salvo of a trade war between the world’s two largest economies.

Stories of transport ships like the Peak Pegasus racing to Chinese shores to beat out the new 25% soybean tariff have been shared on social media, and there doesn’t appear to be an end in sight for this trade dispute. For American export-bound goods, the consequences of retaliatory tariffs on the Chinese side will be difficult to manage; already, we have seen the price for vulnerable crops like soybeans drop more than 16% in the past month.

Just how bad it can be from a price perspective, however, is an open question: while technical movements have been the main source of declining grain prices, could a trade war truly result in a mass production correction?

Experts disagree about the impact a trade war will have on commodity prices; while this last month has been disheartening for bean farmers, a research note released by Goldman Sachs maintains a bullish outlook on the staple in spite of recent losses. The research arm of the bank is forecasting a 10% return on commodities over 12 months as the dollar drops due to trade war. On the brink of a trade war, soybeans are a “buy” for GS, stating in the report that beans have been oversold as they enter sub-840 price territory.

Goldman also states that the rerouting of all beans destined for export is not possible, either; what has been surprising in spite of China cancelling deliveries and rerouting soybeans to places like Bangladesh and Iran, however, is the fact that American bean sellers have been able to find buyers elsewhere in place of China. Although the Chinese have been the largest importer of American beans by far in the last several years, soybean exports are down only 7% from this time last year, according to a Foreign Agricultural Service report released 6/21.

Overall, the impact of a trade war on American commodities will certainly hurt their demand in China, but the impact it will have on global commodities markets remains open: “the trade war impact on commodity markets will be very small, with exception of soybeans, where complete rerouting of supplies is not possible,” added Goldman analysts in the July 4th note.

Trade war concerns will continue to have an impact on commodity prices, until a bilateral solution between Beijing and Washington can be reached; stay on top of trade news by following @packcreekcap on Twitter, and stay tuned for more updates on this ongoing situation.