Chinese Corn Crop, Soybean Demand In Focus

August 15, 2012 01:40 AM

What Traders are Talking About:

* China corn crop under attack. China's corn crop is facing the worst pest infestation in a decade, according to the ag ministry. The ministry says 10% of China's corn crop is facing army worm pressure with around an eighth of that total facing a "serious" attack. A Dow Jones story citing Chinese-based analysts says up to 4 MMT of corn production could be lost to the pests. State-run China National Grain and Oils Information Center marginally cut its 2012 corn crop estimate to 197 MMT from 197.5 MMT previously. Last Friday, USDA raised its forecast for the 2012 Chinese corn crop to 200 MMT.

The long and short of it: Pests are likely to take the top off the Chinese corn crop. Given that Chinese corn production is still expected to be record large, it wouldn't appear to be a big deal. But with the U.S. crop suffering mightily from drought, any cuts to global production is a bigger deal this year.

* Soybean demand strong for now, but may weaken. There has been no appreciable letup in demand for U.S. soybeans yet despite record prices. NOPA data Tuesday showed the soybean crush pace was stronger than expected in July and up from both month- and year-ago. On the export side, China has continued to buy U.S. soybeans, making two daily purchases last week. But given high prices due to tight global supplies, some are forecasting a slowdown in Chinese demand in coming months. A Reuters story citing multiple export sources says Chinese soybean imports may be capped at 12 MMT in the fourth quarter, down from 15 MMT during the same period last year. Of course, if soybean prices ease from current levels, China would likely buy more U.S. beans than expected through the end of the year.

The long and short of it: Now that much of the drought impact is already factored into the market, demand will largely determine price direction moving forward.

* More requests for cut to ethanol mandate. The governors of Arkansas and North Carolina are the latest to ask EPA to cut the corn-based ethanol mandate. They join a growing list of those seeking a reduction in the ethanol mandate via the Renewable Fuels Standard. It's likely some other governors will make similar requests in coming days as it appears those wanting the ethanol waiver are going to make public pleas in waves to keep this issue fresh in the news.

The long and short of it: As I've stated recently, we continue to hear EPA will take its time in making a decision on the corn ethanol mandate, but increasing pressure to reduce the mandate may speed up the process.


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