China and Brazil continue to strengthen their trade relations. China is currently the destination for 25% of all Brazilian exports. The leading trade is on soybeans with China taking 70% of Brazil’s 2022 exports. The volume of soybean trade between Brazil and China has doubled in the past 10 years and is unlikely to slow anytime soon. China was also the importer of 40% of Brazil’s petroleum products and 63% of its iron ore. Corn trade between the two countries is now increasing and thought to come in at 15 million metric tons this year. Brazil currently has a $30 billion trade surplus with China and given news Chinese firms are going to increase investments in Brazil’s infrastructure, this will expand. 

China and Brazil have also announced they will be using their own currencies when trading commodities rather than using the US dollar. As we transition to more of a global market and more trade alliances are seen, the US will become less influential in market factors. 

A hindrance for the commodity market at the present time is an abundant amount of uncertainty. One of the main uncertainties right now is on the global banking situation and what it means for both commodity production and demand. This is also keeping managed money interest in commodities low, and that is what is needed to maintain values at today’s levels and more importantly to give us a rally.

 We are also seeing uncertainty over potential US acres this year and growing season weather conditions. Reports from the country support the higher acreage estimates from the USDA, but weather conditions are raising some doubt, especially on the corn planting forecast. We are now starting to see long-range outlooks that are calling for dry conditions across the US by late summer as the El Nino system strengthens. These factors call for the addition of risk premium, but commodity values are already at elevated values compared to the global market.

Chinese officials have revised the country’s sow herd numbers. At the end of February China is reporting it had 43.4 million sows in inventory, a decline of 0.6% from January, but an increase of 1.7% from February 2022. Data for this total was collected prior to the latest outbreak of African Swine Fever in the country though, and this may impact the actual number of sows China has along with all hogs. Some data shows China has already had to cull 10% of its hogs to contain ASF, while others are claiming infection rates as high as 50%.

It is quite possible China’s quick lifting of its ban on Brazilian beef following the latest cases of Mad Cow Disease in that country was instigated by rising hog losses and a need for meat imports. 

Beef exports out of the United States are running well behind trade expectations. Year to date US beef export sales currently total 346,000 metric tons, a decline of 150,000 metric tons from last year. This yearly sales volume is the lowest we have seen for this date since 2019. The largest beef buyer is South Korea followed closely by Japan, with these two accounting for half of all sales. This sluggish demand is negating concerns over lower cattle numbers. 

US pork sales for the year are showing improvement. Year to date sales currently total 601,000 metric tons, a year to year increase of 23,000 metric tons. Mexico is the largest pork buyer, accounting for one-third of all sales. Japan is also a large US pork destination. US pork supplies are still building faster than demand which is weighing on the hog complex. 

The Food and Agricultural Policy Research Institute, or FAPRI, released its commodity price forecasts for the 2023/24 marketing year. FAPRI believes production this coming season will outpace demand and allow US commodity reserves to build. As a result, FAPRI projects average cash values for the 2023/24 marketing year of $5.32 per bushel on corn, $12.17 on soybeans, and $7.39 for wheat. By comparison the USDA is currently projecting 2022/23 average cash values of $6.60 on corn, $14.30 on soybeans, and $9.00 on wheat.

Trade is starting to focus on renewable fuel demand for US corn and soy oil. Corn demand from the ethanol industry through February totaled 2.55 billion bu (bbu) which is 5.2% less than a year ago. This is also 48.5% of the projected yearly corn use of 5.25 bbu. We will need to see record use for the remainder of the year to reach the yearly prediction.

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