Supply Lines: Soybean squeeze

Supply Lines

The supply crunch in the global grain markets could linger past this year.

Agricultural markets have roared back in recent months from a first-half plunge, bolstered by strong demand from China and smaller-than-expected harvests that are winding down in some key producers, Soren Schroder, the former CEO of trader and processor Bunge, told the Global Grain Geneva conference this week.

That'll set up an acreage battle going forward between corn and soybeans, and it will likely take more than one growing season for the markets to return to balance or a surplus of inventories, he said.

Soybean prices surged to a six-year high this week in Chicago, and corn futures are near their loftiest since mid-2019. China has been a rampant buyer of both as the country rebuilds hog herds decimated by a deadly swine fever outbreak last year. Coupled with the robust demand have been worries that the La Nina weather phenomenon could curb coming harvests in agricultural powerhouses Brazil and Argentina.

Still, analysts and farmers say there's time for South American crops to improve, and the soy harvest in Brazil — the world's biggest shipper of the oilseed — could notch a record, despite the abnormally dry start to the growing season. In the Northern Hemisphere, where farmers are wrapping up winter-wheat sowing, plantings in top exporter Russia are also seen at an all-time high, despite an autumn drought.

There's no indication that China's imports will let up soon, given the strong yuan and domestic corn prices at multi-year highs, Mark Jekanowski, chairman of the U.S. Department of Agriculture's World Agricultural Outlook Board, said at the Geneva conference.

The pace of corn and feed-grain purchases in recent months has caught many people by surprise, he said. And China's level of imports may stay a longer-term fixture of the market, according to Schroder.

Megan Durisin in London

Charted Territory

With Americans staying home more than usual because of the pandemic, and doing lots of baking and cooking to pass the time, this has been a banner year for butter, according to Bloomberg Opinion's Justin Fox.

Today's Must Reads

  • Sugar rush | Brazil is seeing an unrivaled surge in domestic demand for sugar, as an added appetite within the world's largest producer is aggravating woes for a world struggling from shortfalls.
  • Dark chocolate | Hershey taking the unusual step of directly sourcing a large amount of cocoa through the ICE Futures U.S. exchange instead of buying beans in the physical market.
  • Grilled chicken | Tyson Foods said it has suspended managers at an Iowa meatpacking plant accused in lawsuits of betting on how many workers would be infected in a Covid outbreak earlier this year.
  • Hog tied | German pork could remain shut out of some of the world's top markets for at least a year as the country works to contain its outbreak of a deadly pig virus, according to Europe's biggest meat producer.
  • Missing a beet | Sugar-beet production in France is expected to take a bigger-than-expected hit as the spread of beet yellows virus disease wreaks havoc on crops, according to the nation's top producer.
  • Dine-out drought | With fewer people eating out and restaurants closing again, biofuel refiners with millions on the line are racing to secure used cooking oil to supply their plants.
  • Bracing for Biden | American agriculture is bracing for tougher scrutiny of practices from environmental protections to workplace safety in the transition from the anti-regulatory regime under President Donald Trump to the Biden administration.

On the Bloomberg Terminal

  • Even sweeter | EU sugar prices may strengthen into 2021 on new contracts and another deficit, keeping the region's less-volatile costs above world levels, since tariffs make Europe's imports expensive and sugar beet is costlier to produce than cane, Bloomberg Intelligence says.
  • Easing pressure | The U.K.'s 24 billion-pound food and beverage trade deficit means that a Brexit withdrawal deal is key to avoiding the 3 billion-pound nightmare of passing on WTO most-favored-nation tariffs. It also allows European packaged-food manufacturers to keep current supply chains, but could lead to raw-materials deflation if sterling strengthens, Bloomberg Intelligence writes. 
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF's analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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