VIEWPOINT – AUTUMN 2020
As the first wave of Covid-19 appeared to be subsiding earlier in the summer, global S&D’s felt ample: Solid South American harvests were already in the bin and US crops were drilled early (in stark contrast to UK grain plantings), with the USDA predicting the largest corn acreage in some 80 years.
The demand side of the equation was weak with the hospitality sector taking tentative steps towards re-opening and the beleaguered US ethanol industry unable to take advantage of weak corn prices as the global economy continued to falter. This both literally and figuratively represented the calm before the storm.
On the 10th August, a rare type of ‘Derecho’ storm system developed on the southeastern South Dakota- Nebraska border, intensifying rapidly as it moved into Iowa where winds reached over 100mph, spawning tornadoes, torrential rain and large hailstones that crumpled steel silos, flattened crops and left almost 2 million people without power. It destroyed or seriously damaged more than 57 million bushels of commercial grain storage in Iowa and a similar amount on farms across some 38 million acres of the Midwest. Standing crop losses in Iowa alone equated to a bushel per acre across the entire US maize crop. Whilst ordinarily this type of revision would not be enough tip the scales of the global balance sheet it sparked the
STANDING CROP LOSSES IN IOWA ALONE EQUATED TO A BUSHEL PER ACRE ACROSS THE ENTIRE US MAIZE CROP.
first signs of life in a market that had been lulled into complacency. By the end of August, funds had flipped their short positions in corn and meal and increased their length in beans. Prices have barely looked back since.
Against expectations, the demand side has arguably played a greater role in feeding the bull market. China, having declared the virus defeated and emerging from a gruelling lockdown have made efforts to replenish feed stockpiles and to rebuild their pig herd which had been decimated by African Swine Fever (ASF). The official target is to restore inventories to pre-ASF levels by the end of 2020. In July, government statistics show that the herd grew for the first time since April 2018, and in August it jumped by 31% over the same month last year. Accordingly, compound feed production is forecasted to increase by 6.9mmt this year.
However, Chinese efforts to return to normality have not been without storms of their own. As the world’s second largest producer of corn, China also depends on its domestic supplies. In September, two typhoons struck Heilongjiang and Jilin provinces in the country’s north-eastern corn belt, wiping up to 10mmt from the crop. This leaves China more dependant than ever on imports amid tempestuous relations with their largest trading partner. Total maize imports for 2020/21 are estimated to be between 15 million-30 mmt, the majority from the US. Previously, record Chinese corn imports stood at 5.5mmt in 2014/15. China administers tariff-rate quotas for corn, which are set at 7.2mmt/ year and are not usually met. As of Sept. 3, outstanding sales to China from the US stood at 8.8mmt.. A special corn quota of around an additional 20mmt could now be under consideration based on a recommendation from state-owned entities.
4 | ADMISI - The Ghost In The Machine | Q4 Edition
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