WEST DES MOINES, Iowa – As harvest progress in the U.S. wraps up, the focus of the grain markets begins to broaden. And China remains a key player. Additionally the near-ideal production weather in South America has captured much of the focus of the grain markets, now that the weekly market news contained in USDA’s crop progress reports has dried up.
Now the market’s gaze is turned eastward as well as southward: Market Analyst Don Roose with U.S. Commodities in West Des Moines says there’s a few ongoing issues concerning China.
“One: their crush profitability has shrank to almost a break-even,” Roose explains. “There’s a lot of soybeans that are en route to China, and I think when you look at that, that means that they probably don’t need the volume of DDGs that they needed before, so it looks like they’re trying to take a little bit of a step back from their purchasing of DDGs, and that floats over into the excess supply of beans that are in route and in ports in China.”
Roose observes the trade is also keeping an eye on the Chinese economy, which has been sagging as of late; Reuters reports economic growth in China fell to 7.3 percent in the third quarter of this year; China’s growth rate has not dipped below 7 percent since the global financial crisis in 2008.
“Their economy continues to struggle,” says Roose. “Late last week, they did lower interest rates. That was the first time in two years, and they did it to try and stimulate some demand. Also, their pork profitabilty has been under pressure, with excess pork supplies, so that’s also been a bit of an issue from the supply side of the meal.”
Market Analyst Alan Brugler with Brugler Marketing and Management in Omaha also observes that China is beginning its annual reserve buying program. The government is paying roughly $9.35 per bushel to take as much as 40 million metric tons of corn off the market between now and April; the government will then sell back those reserves in the summer when supplies are tighter.
To hear more about the market’s concerns on China moving forward, click the audio player above this story.
