Alex Norton / Beeson Inc.
Talks are being held this week in Mexico as negotiations continue on the North American Free Trade Agreement. It is unclear if the program can change enough to satisfy the U.S. leaders and allow the agreement to continue. The farming community in the U.S. had been under the impression for some time that the impact of any changes or the removal from NAFTA would be for other industries, and had therefore been largely quiet (relatively) on the matter.
In the November U.S. Department of Agriculture World Agricultural Supply and Demand Estimates Report, the market usually has a pretty good idea of crop sizes. Wheat is long done, and later-harvested crops like corn and soybeans have had plenty of time for estimates from the USDA to get closer to actual (from initial estimates in August).
China is a huge global economic power, and their large population and growing middle class is resulting in greater need for commodity imports. A huge imported product is soybeans. The soybeans imported are primarily processed for the meal which is then fed to livestock, with very little used in actual food production for items like tofu, soy milk, etc.
Harvest is all but done for most major crops. Corn and soybeans in the U.S. are still being harvested, and a surprise there could spill over to other markets, but this is not likely. Supplies are mostly known. Final crop production data will come out in the months ahead, but the market's attention is shifting. Export demand, policy and plans for 2018 will be the story.
Much of the volatility in the vegetable oils markets over the last several months has centered on the changing expected demand for feedstock for biodiesel production based on Environmental Protection Agency mandates. Prices have fluctuated a lot based on announcements and expectations for the government's requirement for production and blending of biofuels.
The monthly World Agricultural Supply and Demand Estimates Report holds plenty of changes during harvest time. Actual yields are known for spring crops like soybeans, corn, oats, etc. And the market has plenty of news to trade on with weather forecasts, private estimates from firms like Informa and news stories from around the country. So the October report has a lot of attention on it and provides direction for the last month of the crop cycle.
A report that comes out four times a year from the U.S. Department of Agriculture has historically brought huge sparks to the market. The Quarterly Grain Stocks report gives a real look at how much supply of major commodities is on hand. This report has been notoriously difficult for the market to predict, which has led to major surprises (both bullish and bearish) and major price moves.
One bright spot for commodities markets over the last few months has been vegetable oils. In a landscape of generally well-supplied markets, prices have been weak (save spring wheat's support due to hot and dry weather).
For those following the wheat market wire, Egypt has been a tough topic to avoid of late. From farms in the Dakotas or the Canadian prairies, it can sometimes be difficult to see how Egypt can make such a difference to the wheat markets. But due to a government food assistance program, Egypt is the world's top buyer of wheat year after year. So when there is a disruption in the buying of such a market force, the market takes notice.
The monthly World Agricultural Supply and Demand Estimates Report was released this week. Huge changes were not made from August numbers, but the overall tone was one of generally well-supplied markets with a few exceptions. Corn, wheat and soybeans remain plentiful while other products like soybean oil and peas tightened. The market's reaction was much as expected, with support for prices with bullish changes to balance sheets and pressure in bearish markets (as pre-report estimates did not hold many significant changes, therefore traders were largely not surprised by the numbers).