What We're Watching This Week - Sept. 26, 2016

China’s Action Against US DDGS May Bolster Soymeal Import Demand

POLICY

Dried distillers’ grains with solubles (DDGS) are a protein-rich byproduct of the corn ethanol industry which are used as livestock feed. US exports of DDGS climbed to over 12 million metric tons in 2015 from 1 million metric tons in 2006, mainly driven by Chinese import demand. Against this backdrop, China’s Ministry of Commerce (MOFCOM) ruled in favor of placing a 33.8 percent duty on imports of DDGS last week. China filed an antidumping claim against U.S. DDGS in 2010, although the country ultimately dropped its case in 2012. The market has been expecting Chinese action this time around, especially after the United States recently filed a World Trade Organization (WTO) complaint against China’s agriculture subsidies. In fact, USDA’s bureau in Beijing has estimated that China’s 2016 imports of DDGS could drop by half compared to the prior year. This will cause concern because the country has accounted for roughly 50 percent of US exports in recent years. While China’s action is a clear setback for US corn demand, the U.S. Grains Council expects that rising demand from Vietnam, South Korea, and Taiwan in 2016 will make up a good chunk of the shortfall from China. We will be keeping a close eye on how China’s announcement impacts US ethanol producer margins on the downside and global soymeal demand, a potential feed substitute, on the upside.

Garlic Prices Soar on Faltering Chinese Production

FOOD

Produce Alliance is reporting that garlic growers in California are facing more demand than available supply in September. It’s not because of a local shortage. The garlic crops in California and Spain were in good shape this year, according to Produce News. Yields in China, however, are expected to decline year-over-year by 9% in 2016—and their production is roughly equal to 70% of world demand. As a result, the price of dried garlic in China soared to a record high this summer. But there’s light at the end of the tunnel...a likely release of stocks in cold storage has Fresh Plaza projecting that Chinese garlic prices will start declining in the coming weeks. We will be watching to see if prices in China do, in fact, moderate.

USDA’s Grain Stocks Report Will Shed Light on Recent Feed Demand

COMMODITIES

USDA is scheduled to release their quarterly Grain Stocks report on Friday, detailing US certified inventories as of September 1, 2016. New crop corn yields are still under final review, especially in light of recent flooding in the upper Midwest. Given that we know how much grain was in storage in June, and harvest has not yet hit its stride, the USDA is really telling us how much corn was used. Feed, exports, and ethanol are the three main components of corn demand. Of the three, analysts struggle most to estimate feed. This report will give clarity to that component of the balance sheet. Regardless, US storage bins are expected to be bursting at the seams following the upcoming harvest season.

Zimbabwe Reportedly Secures Funding for Farmer Programs

FARMING

According to the Standard, Zimbabwe’s government has found several politically-connected mining and energy companies to help fund the $500mn in agriculture support that was promised mainly to corn farmers during the 2016-17 marketing season. Private sector support for agriculture subsidies remains critical to the country, as the government remains cash-strapped. The country has failed in agriculture programs, with Operation Maguta, a military takeover of farming, being a glaring case in point. But Zimbabwe’s agricultural sector prefers ineffective support systems to no support at all. The government is also removing the requirement for horticulture export permits because export revenues from horticulture fell to $54 million in 2015 from $143 million in 2000. To summarize, we believe that Zimbabwe’s agricultural policies bear watching in this period of flux.