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Grain futures are stabilizing as the drama leading up to the Phase I trade agreement with China has passed. However, there are numerous questions still unanswered. The biggest is whether China will live up to its commitment to purchase $40 billion of ag products annually over the next two years. That is an increase of $32 billion from the 2017 level. Corn could be the biggest winner, especially if China increases their ethanol production. We can certainly use the business as exports are down 54 percent from a year ago. Inspections last week were meager at 13.6 MB and well below the average of 43.8 MB that must be shipped each week to reach USDA’s target of 1.775 BB. Since the week of November 28th, the pace has fallen nearly 21 percent.
The big question regarding soybeans is China’s intentions for U.S. purchases. In 2019, they bought 85 million tons in which Brazil supplied 57 million tons, or 67 percent of their needs. Even if China reduces purchases from Brazil and increases those from the U.S., global demand will remain approximately the same and probably not have a big impact on price. Meanwhile, China says that market forces will dictate their commitments which implies that they will seek the cheapest source. Keep in mind that harvest of the Brazilian crop is just around the corner. Looking at exports, inspections were up slightly from the previous week at 44.0 MB. China took 17.5 MB which was the most taken by them since December 19th.
Wheat continues to be underpinned from the drought in Australia, the French labor transit strike, the smallest planted crop since 1909, and expectations for reduced exports from Russia. However, shipments from Europe and Ukraine are forecast to rise. Values are also supported from expectations for increased exports to China. Last week, inspections were run of the mill at 15.9 MB and below the average of 20.5 MB that must be shipped each week to reach USDA’s projection of 975 MB. Shipments have not been above the average needed since December 19th.
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