Chinese commodity demand is again the main focal point of the market. Chinese authorities are reporting high commodity supply volumes, mainly on soy meal and pork. This has led to China buying pork for government reserves to help stabilize values but with little success. Consumer demand is falling faster than commodity values, which is not uncommon in a deflationary market.

China is now starting to see job losses, and this will likely depress commodity demand even more. We have now seen a downgrade of China’s credit rating to negative, bringing additional doubt to future demand.

This is concerning for the U.S. export program as business other than China is all down from last year at this time. If we see Chinese demand slow it will be difficult to reach current demand forecasts.

The most interest on Chinese demand is on soybeans. China imported 99.4 million metric tons of soybeans in 2023. Of this, 69.95 mmt originated from Brazil, a year-to-year increase of 23 percent. U.S. soybean sales to China totaled 24.1 mmt in 2023, a decline of 13 percent from 2022. The United States used to dominate Chinese soybean demand in recent years, but the current share of trade is just 24 percent while Brazil has increased its market share to 70 percent. 

The warmer than usual weather across much of the United States this year has brought elevated rain fall rather than snow to many regions. While this has created muddy conditions, it has also allowed more water to make its way into the U.S. river system. As a result, many rivers are now at full drafts for barge movement. This includes the Mississippi River. This will make it easier for barges to get to the U.S. Gulf, but with a lack of export demand from that point it provides little benefit to our export outlook.

The Panama Canal is still restricting passage due to low water levels which makes exports from the U.S. Gulf unattractive. The Pacific Northwest is also seeing less demand as ports are booked to full capacity for the next two months. By then, the South American export program will be well underway. 

Data has been released showing a favorable shift in world food costs took place in 2023. Average food costs in 2023 were down a large 13.7 percent from 2022. In December alone food costs declined 1.5 percent from November. The greatest decline for the year was in vegetable oils, where a 32.7 percent drop was noted. Meat costs were down 1.8 percent on the year and dairy products were down 16.1 percent. We did see a slight increase in wheat costs to end 2023 though, as global logistic issues reduced trade, mainly in the Red Sea. This caused cereal values to appreciate 1.5 percent in December from November.

Even with record demand, Brazil saw its soybean reserves increase in 2023. End of the year soybean inventory in Brazil was reported at 4.9 million metric tons. This compares to 3.7 mmt from the end of 2022. A considerable increase in the size of Brazil soybean crop last year from the year before was the primary cause of the higher ending stocks. This build comes even as Brazil exported large volumes of soybeans into Argentina to cover that country’s drought losses.

The question in global soybean trade now is what will happen to ending stocks if Brazil sees crop loss this year. Most analysts feel Brazil will produce a crop close to last year’s 158 mmt. Given projected demand this will allow for another increase in Brazilian ending stocks.

Trade is starting to focus more on total South American soybean production, which is forecast to be up a huge 25 mmt from last year. This is impacting demand for U.S. soybeans, especially with offers out of Brazil now 70 cents per bushel under the U.S. This change in global dynamics has made the United States a residual soybean supplier rather than a primary source. 

Profit margins for both ethanol manufacturing and soy crushing have been under pressure in recent weeks, and now margins are falling in the livestock industry as well. The current packer margin on beef is a negative $175 per head. Feeder margins on cattle are a negative $250 at the current time, mainly due to higher replacement costs. Margins are even worse in the hog industry right now. The problem with this scenario is that global livestock margins are also negative, which is cutting into export demand and further depressing beef and pork values.

When it comes to hog margins all interest is currently on China. Hog margins in China are presently a negative $30 to $40 per head. China is still offering pork for auction in hopes it will spur demand. This will also make room for the Chinese government to buy pork for reserves and rotate its inventory. All eyes in China are now on the upcoming Lunar New Year celebration as this tends to be some of the highest commodity demand of the year for the country.

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