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December 10, 2020

China Remains Committed to Phase 1 of the Trade Deal: China continues to show strong interest in U.S. agricultural goods with Chinese officials confirming their commitment to reach Phase 1 trade deal goals. 

China is still showing strong demand for U.S. agricultural products and is expected to make a final buying push to improve its standing for the Phase 1 trade deal in 2020. Chinese buying in October included a record $5 billion worth of U.S. goods purchased. To date, China purchased $75.5 billion worth of U.S. goods and services in 2020 – about half the level it should be on for a pro-rated annual basis. While China is behind today, it is a two-year agreement so there is still time. The Chinese foreign minister assured that China remains committed to meeting its obligations under the trade deal. 

2. Russia Imposes Export Tax – Sunflowers: The Russian government will impose a tax on sunflower exports to slow export volumes and the current domestic price rally.

The Russian government will impose a 30% export tax on sunflower seeds and other sunflower products, including oil. The taxation will begin in January 2021 to try to slow export volumes and the domestic price rally. Sunflower crops in Russia and the rest of the Black Sea region were negatively impacted by drought conditions. Russian sunflower production fell 30% in 2020, which caused a sunflower oil shortage. 

3. Canadian Exports on Strong Pace through October 2020: Exports of almost all Canadian agricultural commodities are showing strong year-on-year performance.

Statistics Canada data through October is supportive. Most Canadian agricultural export commodities are up significantly from a similar juncture last year. Canola exports are up by 66% year-on-year, 2.94 MMT in 2020/21 versus 1.77 MMT in 2019/20. Canola crush is up 3% — 2.55 MMT versus 2.48 MMT last year at this time. Canola crush achieved an all-time monthly record in October 2020. Other standouts year-on-year include lentils, peas, barley, flax, wheat and soybeans. Rye has been the one clear disappointment. Durum exports have picked up pace but are still lagging last year’s volumes.

4. Food Insecurity: Food insecurity is hurting the world’s most vulnerable – Syria is now facing a bread shortage and food inflation. Approximately 9.3 million people (nearly the entire population) are considered food insecure. 

Syria’s bread shortage has some locals sitting in up to six-hour lines to get their government subsidized bread rations. For many, it is one of the only foods they can still afford. According to the United Nations World Food Program (WFP),  9.3 million people, close to the entire population of Syria, are considered food insecure. The WFP says the cost of basic goods, such as wheat, rice and cooking oil, is up 247% since this time last year. More people are considered food insecure now than during the height of the war. The country used to produce enough wheat domestically to feed its population however, since the conflict, wheat production has dropped from over 4 MMT to 2.5 just MMT. The Syrian government has relied on Russian wheat to fill the gap in recent years but this year, Russia provided significantly less due to its own smaller production and safeguarding of wheat supplies.

December 9, 2020

1. Drought Area Expands in Western Canada: The western prairies received ample moisture in November while severe drought conditions expanded in eastern Saskatchewan and southern Manitoba.

Areas across parts of western and central Saskatchewan saw the most significant precipitation, receiving over 200% above-normal precipitation. This reduced the abnormally dry-moderate drought ratings in the region from the southwestern corner of the province up to North Battleford. However, towards the east, moderate drought ratings expanded from Mortlach, Saskatchewan through to Manitoba. Severe drought now ranges from Regina to Winnipeg and north toward the Swan Lake region. These areas have seen less than 60% of normal precipitation over the past three months. 

2. Weed-Killer Removal in France: The French government will now give financial aid to farmers who stop using glyphosate in an effort to reduce its usage.

France wants to eliminate glyphosate usage by 2021 — but without incentives, farmers have done little to curb usage of the chemical. Now, the French government will financially aid farmers who agree to stop using glyphosate. France will give farmers a tax cut of 2,500 euros in 2021 or 2022 if they stop using glyphosate. In October, the French Health and Environment Agency announced tighter restrictions on using glyphosate but did not fully ban its use due to a lack of alternatives. 

3. U.S. Export Inspections: U.S. exports continue to run at a stellar pace, with soybeans and corn exports both up 69% over this time last year.

For the week ending December 4th, soybean inspections were above trade expectations while corn was just below. Wheat inspections were just within trade expectations. Corn inspections were 734 KMT and the trade expected is between 750 to 950 KMT. For the marketing year, corn exports are at 11 MMT and running +69% ahead of last year. Soybean export inspections were 2.30 MMT and the trade expected is from 1.95 to 2.2 MMT. For the 2020/21 marketing year, soybean exports are at 26.7 MMT and are up +69% year-on-year. Combined corn and soybean exports are +16.53 MMT year-on-year – this is supportive of the current market. Wheat inspections were reported at 531 KMT and the trade expected is between 400 and 600 KMT. For the 2020/21 marketing year, wheat export inspections total 13.47 MMT, running +3% year-on-year.

4. EU Rapeseed Production: EU rapeseed production is looking more optimistic in 2021/22 but a full-on recovery may be challenging given the difficult seeding campaign.

According to Strategies Grains consultancy, EU rapeseed production is projected to reach 18.2 MMT in 2021/22, which is a decent rebound from this season's extremely low production of 17.2 MMT. However, a full-on bounce back to normal production levels (above 20 MMT) is unlikely since drought conditions hindered this autumn's seeding campaign in countries such as France and Romania. Britain also reduced the seeded area due to yield and pest issues. The EU is expected to end the 2020/21 marketing year with a very tight supply.

December 8, 2020

1. India And Prime Minister Trudeau Comments: A wave of farmer protests is a major story in India. Comments by Prime Minister Trudeau have angered the Indian government.

In recent weeks, Indian farmers have been protesting potential Indian government policy changes in the agricultural sector. The farmers are concerned the supports they deem necessary may be removed. Prime Minister Trudeau and Canadian politicians have made comments in support of Indian farmers. The Indian government warns this could damage relations between India and Canada.

2. COVID-19 Threatens Supply Chain Logistics: JBS SA, the world's largest meat supplier, sent thousands of workers home due to ongoing COVID-19 concerns.

JBS SA's labour issues surrounding COVID-19 have become increasingly challenging since cases started to surge again in October. COVID-19 cases in rural America are also increasing (where meatpacking facilities tend to be located.) Overall, JBS SA has had to put 8% of its 64,000+ workforce on paid leave since the spike began this past fall. The company is trying to be proactive in avoiding larger business disruptions, similar to what it experienced in the spring. Demand for meat products is booming and food security concerns have ebbed and flowed since the beginning of the pandemic. For now, the company reports limited impact on production but COVID-19 remains a substantial risk.

3. The McRib Conspiracy: Is the McRib evidence of McDonald's mastery over the commodity market?

Many of McDonald's customers want the McRib to become a permanent item on the menu. However, McDonald's makes the McRib available on its own schedule – and there has been no clear seasonal pattern. An idea has taken root that the McRib's timing is a mastery of the commodity market — the theory suggests the McRib's appearance is correlated with low prices in swine futures. With that, the McRib reappeared on U.S. menus back on December 2nd. Some others say the supply chain considerations of a restaurant chain the size of McDonald's would make it very difficult to speed up or slow down a menu item's delivery. Instead, these people suggest the McRib is designed to make a splash and drive traffic.

4. Not into Pork? How about Chicken? Chick-fil-A launched a lawsuit against U.S. chicken producers alleging price-fixing.

Chick-fil-A is the largest chicken restaurant chain and buys billions of dollars of chickens every year to make its menu offerings. Chick-fil-A joined an ongoing litigation regarding price-fixing in the chicken industry. The allegations date back to 2008 and involve many of the leading chicken producing companies. The complaint names the three largest U.S. chicken producers – Tyson Foods Inc., Pilgrim's Pride Corp. and Sanderson Farms Inc. The plaintiffs allege the chicken producers conspired together through phone calls and texts to share confidential bidding and pricing information. This would be prohibited under antitrust laws. In highly concentrated markets, such as meat processing and fertilizer, there's motivation to coordinate prices. Punishments are significant when coordinated price-fixing behaviour is proven.