By Karl Setzer

The recent trend of using wheat as a feed ingredient is showing no signs of slowing. The USDA is currently estimating global wheat feeding of 156.7 million metric tons (mmt) this year, up 17.5 mmt from a year ago. The most increase has been in China where usage is projected to be nearly twice what it was a year ago. The United States is also increasing its wheat feeding, and now we are hearing reports that Brazil will increase its feed use as well. This is generating concerns in the world market that we may start to cut into milling wheat stocks, which is keeping futures elevated. 

The proposed shift in Chinese corn demand may not be that negative for overall corn demand. At the present time China consumes roughly 175 mmt of corn for feed. China is elevating its industrial use of corn though, mainly for ethanol, which is what has driven the corn market higher in the country. Even if we see a decrease in feed usage China will still need corn for other uses, and most of it will be imported. 

Wheat feeding is not just increasing in the global market. In the April balance sheets the USDA pegged US wheat and residual demand on wheat at 100 mbu, a 25 mbu reduction from March. According to US feeders this number is too low. While an exact number has not been given, feeders claim they are using more wheat in rations, not less. 

While there are concerns with US soybean sales being canceled this year, there is a record low volume to be washed out of. The United States currently has very little unshipped soybean sales on the books. According to data from Ag Resources, the United States currently has 182 million bu (mbu) of unshipped soybean sales which is a five-year low total. Of this just 27 mbu is with China, although it is thought a large volume of sales to unknown destinations is also China. With these sales, China may have 65 mbu in bookings. Another 42 mbu of sales is to Mexico. 

The United States is starting to see elevated new crop soybean demand as well, with bookings reaching record levels. The US currently has 251 mbu of new crop soybean sales on the books. There are only three other years with a higher total at this time of the year. The majority of these sales are to China who accounts for 45% of the volume. The European Union has also made record forward contracts with the US. Mexico bookings are down however, and are currently at a seven-year low. 

China has announced it will be shifting to feed rations in the country that will require even less corn. China is going to increase the volume of alternative feed grains to try and reduce costs for livestock feeders. In some cases this will reduce corn demand by 15% from current levels. By doing so China will increase its vegetable oil consumption to balance out energy needs in feed rations, giving the soy complex additional support. 

Another source of support for the world vegetable oil market is the increase in biodiesel production. We have seen a considerable increase in global biodiesel production at the same time oilseed production has decreased. While we will see oilseed production rebound, in the meantime it is putting a strain on the world vegetable oil supply and pushing values higher. 

Crush margins remain incredibly high in the United States, and as they do, demand for soybeans is not slowing. Crush margins across the United States are currently averaging between $2.00 and $2.50 per bushel. This is why buyers are willing to pay a significant basis to secure coverage, with bids of $1.00 over Chicago futures being posted. Not only is immediate demand supporting soybeans, but so are concerns over available stocks later this summer. 

The global economy continues to rebound from the initial Covid 19 outbreak. Thoughts are this will continue, and as it does, support the commodity market. Economists predict the world commodity market will remain above 2020 for the rest of 2021, with Ag product values up 14% on the year. Several other products are also forecast to increase, including energy products, that will further support ag values. 

Investors are once again showing elevated interest in commodity futures. This is being brought on by the concerns that commodity inventories will remain tight for the next marketing year and possibly beyond, but from other factors as well. One of the primary ones is the faltering US dollar and how it is not a favorable place for returns. Long-term forecasts for favorable commodity returns is also drawing the interest of investors. Commodities are also being used as a hedge against potential inflation as the US economy continues to recover. 

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