Mexico has been an active buyer of U.S. corn recently and trade may not be fully realizing how much the country may need to import this year. The U.S. border remains closed to Mexican feeder cattle imports, and now Mexican farmers need to feed these animals domestically. The U.S. imported an average of 100,000 head of feeder cattle from Mexico per month prior to the closure due to New World Screwworm outbreaks, and now these animals are now being fed in Mexico. This is straining Mexico’s corn supply, as only 20 percent of the country’s corn crop is yellow corn. The bulk of the crop is white corn for food needs. Mexico will now need to import corn for feed, with most if not all coming from the United States.

This potential shift in demand will likely have less impact on U.S. corn balance sheets than initially feared. While the U.S. may see feed demand dip on the lower cattle numbers, the fact these are now being held in Mexico should increase U.S. exports a similar volume. This may not be bushel for bushel, but enough that the impact on balance sheets will likely be muted. We also have to remember that if the USDA trims the production side of balance sheets, they typically adjust the demand side as well, but given current consumption, areas to trim are becoming fewer.

A notable shift took place in China’s overall imports last year, with 52.75 mmt being sourced from Brazil and 16.8 mmt from the U.S. These totals were a 2 percent year-to-year reduction for Brazil, but a 31 percent increase for the U.S., a reversal of the recent trend for the U.S. losing China’s market share. Delays to the start of Brazil’s harvest and export program opened the door for additional U.S. demand, but since, there have been no Chinese import purchases from the U.S.

One of the greatest hindrances to the market has been this lack of Chinese demand, mainly for soybeans. The fact is China is not buying many soybeans from any source right now. In the past two weeks, China has only booked a dozen soy vessels from Brazil. This low demand is from record soybean stocks at Chinese ports. Chinese officials have the country’s port inventory at 9.8 million metric tons after big July and August deliveries from South America.

China has also been importing canola and finished meals, easing demand for soybeans. Government soybean reserves are also being rotated right now, putting those soybeans into the supply line. With Brazil already seeding its next soybean crop, the window for U.S. sales is shrinking.

There is a development taking place that may alter global soybean trade moving forward. The Brazilian soybean crusher ABIOVE says a sizable $1.1 billion will be invested in the country’s crush industry over the next 12 months. This will add 8 percent to the Brazilian soybean crush capacity, a demand growth of 6 million metric tons. Brazil currently has 144 operational crush plants, and this addition will take the country’s soybean demand above 80 mmt annually. A steadily expanding biodiesel program is calling for this additional crushing, same as in the United States. Brazil currently has a 15 percent biodiesel blend rate, but is considering raising it, adding even more domestic soybean demand and trimming exportable stocks.

While soybean demand remains high, we are starting to see pressure on crush margins. The U.S, crush margin has dropped to a six-month low and Chinese crush margins are negative as competition from alternative grains and protein feeds heats up. One of these is canola, with China now sourcing that oilseed from Australia. China has also booked Argentine meal recently, allowing importers to bypass the crush process altogether. The global soybean market also continues to see pressure from cheap palm oil, with the value of that vegetable oil falling to half of soy oil at times in recent weeks.

While the U.S. harvest is just getting underway, analysts are already looking forward to next year. The most interest at this time of the year is the spread between new crop corn and soybean futures, as these tend to sway acres. Right now, this spread is at 2.3:1, the tightest it has been in the past 2 ½ months. A ratio this tight tends to favor corn production as it takes just 2.3 bushels of corn to equal the values of one bushel of soybeans. This advantage is not from strength in corn, but from weakness in the soy complex.

The United States continues to see expansion to its dairy herd. The U.S. added 10,00 head of dairy cattle to the nation’s herd, taking it to 9.52 million. This is 176,000 more cows in the dairy line up than a year ago, and has elevated year-to-year U.S. milk production by 3 percent. While this added milk production has weighed on dairy futures, it has lessened animals going into the U.S. beef herd, further tightening an already low U.S. beef supply.

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