That ain't chicken feed

Published on: 09:41AM Jul 15, 2020

I suspect that more than a few people were a bit perplexed that the corn market did not respond a bit more favorably yesterday to the largest (1.762 MMT) single-day sale of corn to China on record.  Just in case you are curious, the previous record was set 26-years ago in December 1994 when they purchased 1.45 MMT. Making the reaction a touch more disappointing was the fact that this sale came on the heels of another sale of 1.365 MMT of corn just four days prior.  After all, 123 million bushels of corn ain’t chicken feed.  Well, actually, a portion of this would undoubtedly become chicken feed, but that is beside the point. By the way, this morning the USDA reported additional sales of 389,000 MT of beans and 132,000 MT of corn to China for the 2020/21 crop year.

No doubt, the generally favorable short-term weather outlook took some of the zing out of these sales. Still, I suspect that the deteriorating relationship between the U.S. and China has carried a more significant impact.  Last week the Chinese foreign minister stated that the ties between the two countries were at the lowest level since diplomatic relations were established four decades ago. Yes, China appears to be taking proper steps to honor their side of the Phase 1 trade pact, but do keep in mind that the majority of these, as well as recent bean purchases, are for the 2020/21 crop year. If the relationship between the two nations continues to worsen, they could always try to switch the purchases to a different origin.  There would seem to be no question that China’s recent action in Hong Kong, their maneuvering in the South China Sea, not to mention their overall bullying with trading nations should be addressed.  Unfortunately, agriculture too often appears to take the brunt of the pushback.

There is one additional story from China that is worth repeating this morning.  Over the weekend, Reuters published a video, reported from a grain storage facility in the Heilongjiang province, showing molding corn with excessive amounts of foreign material mixed in.  Well, government-owned Sinograin, leaped to action and sent third-party inspectors to the site, who were happy to report that they found no quality issues.  The official comment from Sinograin was, “The quality requirements are basically consistent with the quality indicators of the batch of corn when it was submitted for auction.” Okay? Kind of makes you wonder if the inspectors were using the same guidelines as the officials who would maintain there was no African Swine Fever, all the while truckloads of dead pigs were being whisked away.

SovEcon has trimmed its estimate for Russian crops this morning.  They lowered wheat output just over 1 MMT to 79.7 and downgraded the total grain crop 2.1 MMT to 126.5.  Picking up the slack though, is Ukraine.  The private consultant APK-Inform bumped the total crop production for that nation 2.5 MMT to 71.5.  Do keep in mind this is still down from the record 75.1 MMT produced last year.

Encouraging reports from the trial of a coronavirus vaccine being developed and tested by Moderna, created a wave of optimism in equity markets with the Dow Industrials pushing over 500 points higher at one time.  In the other macros, we have energies flat, gold weak, financials under pressure, and the U.S. dollar pushing down to the lowest point traded since the June lows.