Weekly Market Recap
12/20/2019 12:17:59 PM
China and the US agreed to a phase one deal on tariff reductions. China pledged to boost ag purchases to $40 billion. The biggest year ever of Chinese ag purchases was in 2013 at $29 billion. There is no clarity yet on whether China will lower or eliminate current tariffs on ag products. They are only suspending the additional increases that were scheduled to take effect December 15th. China said the details of Phase 1 won’t be public until the deal is signed. The US trade advisory panel said the Phase 1 agreement is way more detailed than they thought. The increased ag purchases appear to be weighted towards year 2. It also says there are specific reasons that will allow China to reduce its commitments. China is planning to send their top trade negotiator to the US to sign the Phase 1 deal in early January. The House passed the USMCA on Thursday as expected. The Senate is expected to take up the measure after the impeachment trial in January.
A joint venture between ag/energy heavyweights COFCO, Amaggi, and Shell are looking to build corn ethanol plants in Brazil. Ukrainian corn exports jumped up by 800,000 tons from October to November from 2.3 to 3.1 mmt. Argentina raised export taxes on corn from 12% to 15% as the new administration is looking to increase revenues in the struggling economy.
It is believed that ethanol will count as an ag product and count toward the $40 billion of annual Chinese ag purchases. There was a Bloomberg story out this week that China may restart purchases of ethanol by lifting or waiving tariffs. This will help China achieve the ag purchase target outlined in the agreement. Corn export inspections were 687,000 tons which was above expectations. Export sales 1.7 million tons was the highest total of the marketing year. Mexico was the leading buyer taking over a million tons.
Argentina has raised export taxes on soybean from 30% to 33%. The dry areas in Argentina are averaging less than 50% of normal precipitation in December raising concerns that plantings and production could start dropping.
NOPA crush of 164.9 million bushels was well below the average expectation for 172.0 million bushels. Oil stocks were expected to hold steady but increased slightly from 1.423 to 1.448 billion pounds. Soybean export inspections were 1.3 million tons which was right in line with expectations. The biodiesel tax incentive is part of latest spending bill. The current proposal will retroactively extend the $1 per gallon credit from 2018 to 2022.
Wheat export inspections of 506,000 tons were above trade expectations. Export sales were 868,600 compared to expectations of 200,000-600,000. This is the biggest sales total of the marketing year.
Cash cattle has been very light so far this week in the $120 area. Boxed values have fallen off sharply which has cut packer margins down to $48/head. Just a month ago margin were comfortably above $300/head.
Crude is on track for the third consecutive weekly gain. The U.S./China and USMCA trade deals have provided a brighter outlook for growth demand in 2020. Adding further support is that U.S. crude inventories are at their lowest level since the beginning of November, according to EIA data. U.S. drivers covered 1% more miles in October than they did a year earlier, according to the Department of Transportation. Total travel is up in 2019, while gas demand has remained relatively flat, indicating increased vehicle efficiency.