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March 25, 2020 | FBN Insights | Kevin McNew

Soy Meal Has Been the Leader

Argentina’s new elevated tax structure shifting demand to US

Soy Meal Has Been the Leader  

Argentina’s new elevated tax structure shifting demand to the US from the start of the year.

Argentina and Brazil’s current port issues including threats of strikes and new safety protocols for coronavirus.

The slowdown of ethanol grind is firming distillers values leading to increased domestic meal demand as a protein feed alternative.

The rebuilding of Chinese feed demand as they try to move beyond African swine fever and coronavirus combined with slowed South American logistics have led to nearby supply tightness of beans/meal.

A huge unwinding of long oil and short meal positions – one month ago, managed money was long 52k oil and short 68k meal.

Spot crush margins have surged to 16 month highs at $1.40/bushel.

FBN’s Take On What It Means:  This combination of factors has resulted in a sharp rally in US soy meal values that we believe will continue to underpin soybean prices.


Ethanol Production Expected to Slow  

This morning, the EIA data will release ethanol production for the week ending March 24th. 

Estimates are calling for production in the range of 950-975 thousand barrels per day (kbd) vs 1,035 kbd last week.

While this week’s numbers will reflect a slowdown, an even more drastic decline in run rates will likely be seen in next week’s production numbers.

Ethanol plant slow-downs increase as operating margins remain deep in the red after recently falling to as low as -.95.

If run rates average 950 kbd vs the recent average of 1,050 kbd the market would lose nearly 10 million bu of corn demand.

FBN’s Take On What It Means: We believe the unprecedented decrease in gasoline consumption has led to a decrease in ethanol production, which in turn will weigh on corn markets until driving returns to normal. 

The risk of trading futures, hedging, and speculating can be substantial. FBN BR LLC (NFA ID: 0508695)

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