Grains: December was a fitting end for the year
The soybean market has been quite understandably focused on South America where weather has been good in Brazil and mixed in Argentina. Brazil was a little dry in November, but rains in December were above average in almost all key growing areas. Argentina was dry into mid-December but rains there have also been improving. However, it’s worth noting that their planting pace is equal to their 13-year low and some acres could be lost. Estimates for the Brazilian crop have been rising and their Deputy Ag Minister commented that they could equal last year’s 114.1 MMT record. With nearby futures down 3.6% for the month it appears the market is starting to agree with him.
On the demand side, China remains the bright spot as they have been for the past decade. For the first quarter their crush and imports are running 7-10% ahead of last year. That has some optimists predicting “triple digit” imports, following last year’s record of 93.5 MMT.
Unfortunately, for U.S. exporters, the USDA made an ill-advised agreement with their Chinese counterparts. The agreement subjects all U.S. cargoes with foreign material (FM) above 1% to additional testing and screening at destination. This forces U.S. exporters to endure additional costs at origin or additional risks and costs at destination. No other country has such an agreement with China.
Domestically the government has been a bit more supportive of the soybean industry. The International Trade Commission confirmed their preliminary findings and soy methyl ester from Argentina and palm methyl ester from Indonesia are effectively blocked from import into the U.S. for five years. This has been very helpful to the domestic biodiesel and soy processing industries. Those groups are also hoping for a late Christmas present from Washington where “tax extenders” will be considered in January. That collection of corporate “pork” includes a one dollar blenders’ credit for biodiesel that would be retroactive and multi-year.
Our broad view of U.S. agricultural futures is that wheat and corn are closer to finding value than our soybeans. Unless South American weather turns bad in January, March soybean futures will trade below nine dollars. If the South American corn and soybean crops both do well, we’ll be facing the economically painful task of idling some U.S. acres in March and April.