There is a growing debate in the market over what recent planting and growing conditions across the United States have had on yield potential, primarily on corn. There are several yield scouts who claim corn yield potential has been lost and the average will be below trend. While this is possible, it may be too early to make sizable reductions. There have also been years in history where conditions are similar to this year and final yield was above trend. With improved farming practices and seed genetics, yield may be more resilient to recent conditions.

Much of the weather focus in the market right now is on the United States and South America, but we are seeing attention on other regions of the globe as well. One that is gaining attention is the European Union. It has been unseasonably warm and dry in the EU recently and these conditions are forecast to last another 10 days, putting some stress on developing crops. We are seeing these conditions develop in Russia as well. These will be closely watched to see if they start to alter crop potential there also.

COVID remains a major concern in the Chinese economy. This is starting to move more into agriculture. Concerns were voiced last week over potential planting delays due to travel restrictions and how these would impact commodity demand and production. These concerns are escalating, as now is when China should be seeding their spring crops. There are also worries that these restrictions could impact the harvest of the winter crops. To see China’s long term commodity outlook altered from this development would not be a surprise.

We are starting to see more debate over Chinese soybean demand for the 2021/22 marketing year. The current USDA demand estimate for China on soybeans is 91 million metric tons (mmt). Other models indicate Chinese demand is higher and total imports will be closer to 99 mmt. This number seems optimistic given China’s recent import volumes and negative crush margins. It seems China’s yearly soybean imports will fall closer to 95 mmt given their recent increase in buying, although it is likely the bulk of these will still be sourced from South America.

One factor that is impacting not only Chinese imports but all global trade right now is currency valuations and exchange rates. The Chinese Yuan has lost 3 percent of its value recently, which makes the cost of imports more expensive. This is compounded even more with elevated freight rates due to rising fuel costs. The Brazilian Real has also rallied versus the U.S. dollar, which means less revenue on commodity sales out of that country. There are hopes this will bring the United States more export business in the near future, especially as the Brazilian soybean export program starts to slow.

Country movement is starting to be more of a market topic. Very little movement is currently taking place which is not uncommon once the spring planting season gets underway. This is causing some concern in the cash market as processors want to secure as much coverage as they can to capture current margins, especially in the soy complex. The next big flush of farm stored inventory will likely come after planting wraps up, and then only if developing crops look favorable.

Energy costs have started to become more of a market factor. Not only are these impacting global commodity trade, but domestic travel predictions as well. The average U.S. gasoline values have climbed to a record high of $4.37 ½ per gallon. The highest costs are being seen on the West Coast, which is not surprising. The concern that is being voiced with these higher energy costs is what it may mean for summer travel plans and if the U.S. consumer will cut back.

High energy costs will likely have an impact on production agriculture if we do not see a correction as well. For one, farmers may limit their tillage needs this spring and again next fall. What may be a greater concern is for the cash market if farmers scale back on how far they are willing to move product. It is not uncommon to see producers market inventory to closer delivery points if fuel costs are high. This may force some buyers to push for coverage even more than they already are.

More countries are starting to adjust their GMO import regulations. One of the most recent is Australia, which approved GMO wheat imports from Argentina. It is highly unlikely Australia will import Argentine wheat, but this move makes it easier for expansion of GMO wheat production domestically. If Australia expands its use of GMO genetics, it will become a benefit for not only that country’s production but for elevated exports to the global market as well.

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