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Grain Prices Lower Heading into Election

China imports U.S. ethanol; IGC reduces global grain forecast

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China Imports U.S. Ethanol

  • On an earnings call Friday, ADM mentioned that one shipment of ethanol was booked to China and buyers were looking at further purchases.
  • US ethanol exports to China nearly ground to a halt in 2019 after China imposed a 70% import duty on supplies from the US.
  • The United States exported about 20% of its fuel ethanol to China in 2016.
  • The Chinese government would need to lower the tariff back below 30% to allow US ethanol imports to increase.
  • China suspended its E10 blend goal in January and has delegated decision-making authority on ethanol blending to provincial governments.
  • Reaching the E10 target would have required about 15 million tonnes of the ethanol annually, more than 2½ times current production.
  • China is expected to have 18 first-generation ethanol plants in operation by the end of 2020, up from 14 in 2019.
  • China may not have the blending infrastructure to take in a large volume of imported ethanol.

FBN’s Take On What It Means: The suspension of China's national E10 mandate was a blow to U.S. ethanol exports which were expected to increase after the U.S. and China reached the Phase 1 trade deal. Limited ethanol production capacity, a recent drop in corn stocks, and corresponding rising corn prices have stalled new blending mandates. While northern provinces, which are corn producing areas, continue to build new plants, southern provinces may continue to import ethanol if it is economical. Any new export business would be welcome, but the focus has been on corn imports to alleviate high domestic prices.

IGC Global Grain Forecasts

  • The International Grains Council (IGC) reduced its October global corn crop forecast for 2020/21 by 4 million tonnes to 1,156 million tonnes.
  • U.S. corn production was forecast at 374 million tonnes, in line with USDA's current forecast but below 376.5 million forecast last month.
  • IGC cut its forecast for Ukraine's corn crop to a three-year low of 33 million tonnes from 35 million last month.
  • The forecast for the EU corn crop was cut to 62.6 million tonnes from 67.4 million tonnes in September.
  • The world soybean production forecast down down 3 million to 370 million tonnes, due to reductions for the US, Argentina, India and Ukraine.
  • The IGC slightly raised its forecast for 2020/21 world wheat production by 1 million tonnes to 764 million.

FBN’s Take On What It Means: World corn output was cut due to decreased production following prolonged drought in several major growing regions. Despite another month-on-month decline, world corn output in 2020/21 is still forecast at a new all-time peak, up 3% from last year. World soybean production is still projected to be 9% higher than last year. However, stocks of both are expected to be lower than the previous season due to increased global demand. Though values may correct lower, demand has been the driver which will likely support grain prices on breaks.

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