Hot Commodities: Pigs, Pulses And Polar Vortexes

Nothing gets to the heart of decentralized, organic blockchain technology growth like mandated governmental legislation to search for potential use cases.

In response to our neighbor and technology powerhouse, Wyoming, pushing through legislation on digital assets focusing on cryptocurrency, the Colorado House refused to be outdone and filed a bipartisan bill to assemble a working group on the use of blockchain in the state’s agriculture: a search for use cases for the nascent technology.

Why the groundbreaking technology that’s going to revolutionize every sector on Earth needs a government advisory group to find areas for implementation is a great question, but the group will report back on January 15, 2020. We’ll be eagerly awaiting the findings!

Today, we are going over a few factors in the agricultural markets, as spring planting is on the horizon.

African Swine Fever

The Year of the Pig is proving to be a major challenge for hogs in China, as African swine fever (ASF) continues to spread throughout the country, decimating herds and causing ranchers to cull millions more hogs. Meanwhile, pork prices in China and abroad are increasing rapidly. 

Home to the world’s largest pig herds, China reported over 100 outbreaks of the disease in 28 provinces, regions, and municipalities since August, with the vast majority found on farms and one at a slaughterhouse. Next door, Vietnam reported a total of 221 outbreaks across 17 provinces and cities and has since set up control zones limiting and restricting even human movement.

Last Friday, the U.S. Customs and Border Patrol announced that they had seized 1 million pounds of smuggled pork imports with China origin, but have not commented on whether the meat is suspected to have swine fever. Other nations are taking caution as well, with a handful of other nations banning all pork imports from Vietnam. ASF is not transferable to humans, but the risk is towards infecting local herds.

The culling of the herds will decrease demand for feed from local soybean crushing facilities as well as imported feed ingredients, complicating the ongoing trade war between the U.S. and China. Chinese negotiators made concessions and promises to buy U.S. soybeans from overflowing silos after retaliatory tariffs all but cut off exports to China.

But with decreased soybean demand from feed producers, and South American harvest in full swing, how much of that promised demand will be purchased is a major concern. Chinese traders will likely top off strategic soybean reserves and ramp up crushing for export markets to appease trade negotiators.

Midwest Flooding

Following the “bomb cyclone” that swept across the country last week, major flooding broke out across the grain belt, with Nebraska one of the hardest hit states. State officials estimate damage at over $1 billion, with the Nebraska Farm Bureau estimating “$400 million to $500 million in livestock losses and about $400 million in crop losses.”

Grain silos and barns filled with water across the region, destroying stored grain and killing some livestock. Local and state governments are airlifting feed in for ranches with stranded herds. Many of Nebraska’s ethanol facilities shut down, as flooding stopped most traffic.

One potential silver lining to the major storms and flooding is that soil moisture throughout the grain belt will start hitting high levels as spring planting season begins. But if heavy rains continue through the spring season over fully saturated soil, floods could continue and farmers could have trouble getting machinery in to complete planting.

The Nebraska Farm Bureau set up a disaster assistance program to help affected farmers. You can find out more here.

Commitment of Traders

Corn and soybean futures both saw large increases in managed money short interest over the past few weeks. For soybeans, the continued drag on the trade negotiations between the U.S. and China, the ASF breakout across Asia, and the imminent South American crop all represent major headwinds for price strength, causing money managers’ short position to increase significantly over the past month.

In the corn futures market, after the most recent USDA WASDE projected lower exports, lower ethanol demand, and much larger carryout, money managers’ net short interest increased to the highest in over three years, conveying a major bearish undertone.

But with money managers extremely net short across soybeans and corn, any major bullish news could spur a major short squeeze rally. Farmers certainly need it.

USDA Export Loadings

Export loadings for the week ending Mar 14, 2019

Indian Regulators Raid Glencore and ETG

Pulses, which are members of the legume family and include chickpeas, lentils, and a variety of beans, are a valuable crop for a huge swath of the globe. A pulse’s dry, edible seed is a major protein source, and the plant is a nitrogen fixer — bacteria in nodules on the roots “fix” atmospheric nitrogen into the soil usable by plants — making them valuable rotational crops with grains and other annuals.

India is one of the top pulse consumers, and depending on monsoon rains and harvest levels, can be either an importer or exporter of the various pulse varieties. Lentils are a major crop in East Africa and countries with the East African Community have been working with Indian counterparts to set up trade agreements specifically related to pulses.

Last week, Indian regulators raided the offices of international traders including Glencore, Export Trading Group, and India’s Edelweiss Group for accusations of price collusion from the 15/16 marketing season. Farmers in India and East Africa always decry unscrupulous traders taking advantage, and now claims may have some merit. In addition to any potential fines the Indian government is considering, an interesting punishment would be to mandate the companies work towards increased price transparency and supply-chain efficiency. 

Transparency and efficient markets would do much more for farmers than any potential fines, even if that money were to make it to the farmers.