Miller Magazine Issue: 120 December 2019

98 MARKET ANALYSIS MILLER / DECEMBER 2019 culture and Livestock Federation of Santa Catarina (Faesc) indicated that livestock producers in the state will face corn shortages and higher prices in 2020. The president of Faesc attributes the corn shortage to very tight available supplies, strong domestic demand for corn, surging ex- ports, and a weaker Brazilian currency. Brazilian corn exports in 2019 could set a new record of 41 million tons due to a weaker Brazilian currency, which is currently trading at about 4.2 reals per dollar. The strong domestic demand is coming from two sources, livestock producers and ethanol producers. Meat exports continue to increase mainly due to the strong demand for animal protein from China. In fact, live cattle prices are a record high in Brazil and in some cases, 50% higher than at the start of 2019. The demand for corn for ethanol production is expected to be as high as 5 million tons in 2020. SOYBEANS The diminutive soybean has become an unlikely symbol of a US-China trade conflict that has firmly raised geopolitics above fundamentals as the primary determinant for CBOT price di- rection. But firstly soybeans were overproduced and at the same time China cut protein needs – these are the main fac- tors. But everyone likes to talk-on-talk, so let it be. Soybeans are the second-largest US export good to China by value, in an otherwise disproportionate trade relationship balanced in Chi- na’s favor. For US farmers, this annual trade (20mmt-28mmt) has historically represented a rare source of security as other China-bound F&A products declined into an increasingly com- petitive global trade landscape. It left one-third of supplies ear- marked for China stranded, bloated US and world stocks to records, and further disillusioned the fragile US ag economy about China’s promise. China’s punitive tariff measures on US soybeans did not spare its importers, who paid higher prices to South American suppliers unable to wholly satisfy Chinese soybean demand. Importantly, China’s soybean deficit was cushioned by a critical internal issue hidden amid the trade turbulence – namely, a growing ASF epidemic that decimated its hog population and curtailed feed demand. The result in 2018/19 was the first decline in Chinese soybean imports in 16 years, from 94mmt to 83mmt. Looking to the year ahead, trade optimism will provide an unstable foothold for soy prices to climb further, while any geopolitical deterioration should be cushioned by improving supply-side fundamentals. 2019/20 global production is seen down 6.3%, cutting global stocks- to-use from a record 32% to 26%. In the US, conversely, farm- ers will respond to higher Chinees demand. Southern Buenos Aires and southern La Pampa received some rainfall last week, which helped relieve some of the dry- ness, but it did not fully recharge the soil moisture. The core production region of central Argentina continues to receive the most rainfall and the moisture situation in central Argentina re- mains favorable. There were also rains in northern Argentina, which should set the stage for soybean planting starting this month. The forecast is calling for dryer than normal conditions for the next 10 days at least which will result in increased mois- ture stress, especially in the southern and western areas. The bottom line is that the weather in Argentina continues to be very uneven and not what it should be for this time of the year. The soybeans in Argentina are 39% planted, which is 1.7% slower than last year. This represents an advance of 7.7% for the week. The most advanced soybean planting is in the core production areas where the crop is 60-65% planted. In southern Argentina, the soybeans are 15-30% planted and soybean planting has not yet started in far northern Argen- tina. The soybeans are in vegetative development and the crop is rated 34% fair, 62% good, and 3% excellent. The soil moisture for the soybeans is rated 14.8% short to very short and 31.4% optimum to surplus. Last week, both the Bue- nos Aires Grain Exchange and the Argentine Government in- creased their soybean planted acreage by 100,000 hectares due to the assumption that farmers may switch some of their intended corn to soybeans. The switch is occurring because farmers are concerned that the new administration, which will assume power on December 10th, will increase export taxes and potentially interfere in the corn export market. The Brazilian weather continues to improve, but it is still uneven with pockets of dryness in parts of south-central Brazil and in northeastern Brazil. The weather has improved enough in Brazil to go from a neutral to lower bias to just a neutral bias. Late planted soybeans in Brazil can still have acceptable yields as long as the weather during the remain- der of the growing season cooperates. The biggest impact of late-planted soybeans will be on the safrinha corn crop. The 2019/20 Brazilian soybean crop is approximately 88- 90% planted compared to 93% last year and 85% average. The soybean planting is essentially complete in Mato Grosso and Parana. The remaining areas to plant are in northeastern Brazil and far southern Brazil. A significant percentage of the soybeans in the state are double-cropped after wheat and the wheat harvest in the state is now nearly complete. Even though planting has been somewhat delayed in the state, farmers are still expecting good soybean yields. Domestic soybean prices in Brazil continue to strength- en due to the weaker Brazilian currency and tight available supplies. The new crop harvest should start in early Janu- ary in western Mato Grosso where some of the first soy- beans were planted. So let’s just watching how it will be and then say ‘I told you so!’