The U.S. harvest season is progressing at a slower than average pace, which some analysts feel should support commodity values. Harvest delays are really only a concern if the crop is either in jeopardy of being damaged or inventory is in short supply, however, and neither of these are an issue right now.
There is also a big difference between slow harvest and no harvest. If anything, the slow harvest has been a blessing to terminals that need time to move inventory.
The harvest is a long way from finished, and we are already hearing of storage issues across the Corn Belt. This is a result of various factors, with large old-crop reserves and logistic issues being the primary ones.
The fact that yields are better than what many had planned on is also impacting storage space, as is the fact many producers continue to pay storage rather than give up ownership. This prevents terminals from being able to market their inventory.
Measures are being taken to help remedy this situation, but they may be too little, too late in some cases. One that is being most heavily touted is that some terminals are only taking delivery of pre-booked bushels.
Others are allowing bushels to be delivered, but they need to be sold as soon as they are brought in. Concerns are that these issues will only multiply as harvest progresses and on-farm storage fills.
The combination of these factors is weighing on U.S. exports. Buyers have been showing concern with shipment disruptions, and have started to book needs elsewhere as a result.
The one that is being most talked about is China, which has recently been buying South American soybeans for delivery as soon as November. While this appears negative, it could open the door for elevated exports later in the year when logistics improve.
More buyers are shifting their interest to South America for soybean needs. One of the main reasons for this is price, but there are others as well. Availability is right at the top, as total South American soybean production is expected to be 63 million metric tons (mmts) greater than that of the United States this year.
Recent logistics issues in the United States have also caused some buyers to look elsewhere for needs.
Another reason U.S. soybean demand is down this year is quality. Many soybeans in the South were harvested early this year to prevent losses from Hurricane Irma. In some cases these beans were not fully ripe and now damage is quickly taking place. The only way these can be sold for export without taking a steep discount is by blending them, and that will greatly reduce profit margins.
There is just as much anxiety over the quality of this year’s corn. Early in the harvest there were reports of toxins, but these have since passed. Now the worry is over reports of sprouting in regions where there has been continuous rainfall.
There are also reports of more broken kernels this year than in most. The combination of these factors could make it difficult to store this year’s corn.
Chinese officials have released their soybean import statistics for the month of September. During that month, China imported 8.1 mmts of soybeans, a 13 percent increase from the same month a year ago. This was enough to push soybean imports for the calendar year up 15.5 percent from last year.
For the year China has imported 20 percent more soybeans from Brazil than a year ago, while imports from the United States are up 15 percent. The question in the market is how long this elevated Chinese soybean demand will last.
Chinese officials have announced they will halt their purchases of soybeans for government storage facilities. One theory behind this move is that China has adequate soybean reserves following its recent harvest and no longer needs to make imports. Another is that China wants to continue rotating its soybean stocks, and any disruption to imports is only temporary.
Mexico has been an active corn buyer in recent weeks, and there are thoughts this is being done ahead of any changes that may take place to the NAFTA trade agreement. Others believe it is simply from the low value on U.S. corn at present.
Another theory is that Mexico wants to buy corn now, as it is concerned with the quality and availability of new-crop corn if farmers do not sell in a timely manner. The likely answer is it could easily be a combination of all these factors.
The U.S. industry that could see the most changes if NAFTA is abolished is livestock production. If NAFTA dissolves, trade rules would revert to those set by the World Trade Organization. This would allow Canada to set an import tariff of 26.5 percent on U.S. beef imports.
Mexico could set import taxes of 20 percent on chilled beef and 25 percent on frozen beef. The question is if this would increase demand for U.S. beef, or simply raise the cost of beef to the consumer.
Karl Setzer is a commodity trading advisor/market analyst at MaxYield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com
The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.