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Soybean imports to China expected to drop
October 31, 2018

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China's soybean imports are set to drop about 25 percent in the next three months, their biggest fall in at least 12 years as buyers curb purchases amid the trade war and high domestic stockpiles. In July, China implemented a retaliatory 25 percent import duty on U.S. soybeans sparking more conflict on the trade, which has since gathered steam with the introduction of fresh tariffs of other products.

China buys about 60 percent of the oilseed traded worldwide, making them the world's largest buyer. China's purchases will mainly be from Brazil, Argentina and Canada and average around 6 million tonnes per month on imports in the fourth quarter. Currently, the landed cost of U.S. beans in China is similar to Brazilian soybeans even including the 25 percent tariff, however Chinese crushers are reluctant to take U.S. supply as they fear authorities may not approve cargoes or tariffs could increase.

Two previous soybean sales to China were cancelled last week pushing soybeans lower to close the late last week. This was not a surprise to most, but the market took it as bearish news with nothing to support it. Looking at year to date sales, U.S. soybean export sales are lagging 21 percent. While shipments to China are down by 80 percent, shipments to other destinations are up 50 million bushels, or 40 percent.

Harvest progress released Monday afternoon was at 49 percent complete for corn. This is up 10 percent from the previous week and 2 percent ahead of the 5-year average. This was also 12 percent ahead of this week a year ago. Soybean harvest was at 53 percent complete, a 15 percent increase from last week. Soybean harvest is 14 percent behind a year ago and 16 percent behind the 5-year average.

Export inspections for the week ending October 18th, released Monday, showed soybeans are still down about 40% from this time last year. Soybean loadings totaled 42.2 million bu., down 2.3 million bu from the previous week. Corn still remains well ahead of the anticipated pace coming in at 37.4 million bu, down 2.4 million bu. from a week ago, however it 12 million bu. higher than a year ago.

African swine fever continues to spread thru China and appears to be accelerating. Two new cases were reported Monday night in a central region, which makes a total of 5 new cases this week and totaling over 40 reported cases. It's suspected there are dozens of cases that haven't been reported yet, some sources claiming the official numbers could be 10 times higher. Reports state that due to the disease around 200,000 pigs have been culled. The disease is spreading from the Northeast to the Southwest part of the country, moving towards and into major pork producing regions. It has also been reported that Japan found the virus in sausage packaged from China.

President Trump and China's President will meet at the G20 summit in Buenos Aires to discuss the trade dispute between the two countries. Larry Kudlow, the National Economic Council Director, stated that the U.S. "asks are on the table" and the two leaders "will meet for a bit". He also cautioned that he does not expect any major breakthroughs to be achieved but a broad agreement would be welcomed. The trade dispute is weighing on both countries markets, the benchmark Shanghai Stock Exchange Composite Index fell last week to its lowest level in four years due to trade tensions and concerns about economic slowdown.

The USDA has issued a statement regarding damaged soybeans that may be eligible for quality adjustments, if soybeans do not meet grade requirements for U.S. number 4 soybeans. Soybeans that have kernel damage greater than eight percent, will qualify for a quality adjustment in accordance with the Risk Management Agency's special provisions of insurance. Soybeans may also qualify for Zero Market Value, if there are no willing buyers available to purchase the damaged production. If there is no salvage market found for damaged production, the Insurer's provider can apply Zero Market Value procedures to calculate a Loss Adjustment.

Despite the lowest margins in the past 5 years, ethanol production for the week ending October 19th increased from the prior week. An average of 1.024 million barrels per day were produced each day last week, up 13,000 from the prior week. Ethanol stocks decreased 233,000 barrels and still record large at 23.89 million barrels. Trade will continue to keep a close eye on margin calculations especially with the seasonality of corn basis coming into a much greater role moving forward.

Soybean planting continues at a record pace in Brazil, it is estimated they have seeded 34 percent of their expected acres versus 20 percent last year at this time and nearly double the average of 18 percent. It is expected that these early bushels will be in high demand by both the export market and crushers, as supplies there are expected to marginal.

Export sales for last week were below expectations for corn and soybeans. Corn sales totaled 13.8 million bu., expectations were for sales to be between 16 and 31 million bu. Soybeans sales totaled 7.8 million bu., expectations were for 11-26 million bu. Wheat sales were on the high end of the expected range of 7-18 million bu., at 16.3 million bu.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.

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