Citizens Weekly Newsletter January 4, 2019

2019 is coming in with a bang across many sectors of the market. Outside market volatility feels unprecedented with wild swings higher or lower on seemingly little in the way of major headlines, while commodity traders work to pin down short-term demand in the face of a USDA shutdown.

Traders returned after the New Year’s holiday to fresh conversations surrounding Chinese state-buyer soybean purchases. While several private traders indicated China was in the market again enquiring about prices and looking to buy, there will be no confirmation of actual amounts until the government reopens or the beans are shipped. Even without confirmation the idea sales are taking place lent support to the bean market as a whole.

Also helping to support the bean market is the idea that hot and dry weather have reduced crop outlooks in Brazil. It was only just a few weeks ago that several traders were discussing a 130 mmt (4.8 billion bushels) crop, a new record and much above last year’s 119 mmt (4.4 bbu) production. At its last release the USDA had projected a 122 mmt (4.5 bbu) crop, with the Brazilian government estimating 120 mmt.

While many areas have seen at least some rainfall throughout the month of December, it is extreme temperatures causing great concern. With hot and dry conditions forecast to remain in place over the next 2 weeks many analysts and production experts are starting to adjust yield estimates lower, with one well-followed private group dropping their estimate to just over 116 mmt (4.3 bbu).

At this point many are quick to point out the vegetative index does not necessarily support an extreme reduction in production outlooks, while many others are quick to say the soils in Brazil are very different than those we are used to in the US. At this point we are a few weeks from harvest, and as is the case when it comes to soybeans, the only way to really know what a field is capable of is harvest though it will likely be an intense topic of discussion in the weeks ahead.

We have been watching the development and spread of African Swine Fever in China with horror as one case quickly turned into ten and ten into one hundred. This week marked a first in that the disease was discovered in a large commercial facility with 73,000 pigs on site. Prior to the discovery many had believed large farms were able to avoid contamination due to better production practices. With this discovery it brings a whole host of issues into the forefront, the most important being how did the contamination take place, with the concern being it came via feed.

Also catching trader attention is the discovery of the disease in a dead hog found in Kinmen, an island off the Chinese coast. This is a major issue as it would mean the disease is in the water, or at the very least an illegal movement of sick hogs took place increasing the potential of it spreading to the herd there and elsewhere.

The Chinese government is taking further action to crack down on the illegal transport of hogs and working to limit the spread in slaughterhouses as well. Increased fines and jailtime were announced for those found to be illegally transporting sick hogs. While new requirements announced this week force a slaughterhouse to shut down for at least 48 hours and cull all hogs present if contamination is discovered. Many believe this will increase the number of animals killed but not put into the food supply significantly, further pushing the country to increase its pork imports.

While the idea of increased pork imports has really helped to firm cash hogs and the hog market outlook as a whole, the Chinese feed demand potential being lost is something that should not be ignored.

The USDA announced today that the major report scheduled for the 11^th of January will be delayed indefinitely as the government remains shutdown. We will now have to wait for updated production, demand, quarterly stocks and wheat seedings until a later date. It will be interesting to see how the market trades when there is no USDA information to discuss. So far we’ve seen values move higher, but with South American weather getting interesting and China/US trade talks slated for next week, that is not too surprising.