By: Arlan Suderman, Chief Commodities Economist
Today's Perspective Video: Taiwan Showdown: Crisis Averted or Commodity Market Risk Ahead?
December 30 - It's been a choppy two-sided affair on Wall Street thus far today, as investors seek to bring 2025 to an end. It's been a tumultuous year with "uncertainty" at very high levels for much of the year due to President Trump's tariff war, combined with escalated geopolitical risks. Yet, the major stock indices are near record high levels as we prepare to close out the year, with plenty of tax incentives expected to stimulate the economy in 2026 if Trump can reduce the uncertainty. The VIX is trading near a one-year low near 14 again today, while the dollar index is trading near 98.2. Yields on 10-year Treasuries are trading near 4.12%, while yields on 2-year Treasuries are trading near 3.45%, as the yield curve slowly steepens. Crude oil prices are modestly higher on geopolitical risks, while grain and oilseed prices are mixed to weaker today in relatively quiet trade.
Crush margins are improving in China, but not for U.S. soybeans. The graphic below shows the forward crush margin for soybeans landed in China from various sources. There aren't a lot of offers from U.S. sources going forward, because the margins simply aren't there - the economic incentive is not there to purchase U.S. soybeans. That's even the case for January delivery soybeans, when U.S. soybeans just harvested a few months ago would be more expensive than soybeans harvested nearly a year ago in Brazil. That says something about the supply of soybeans in Brazil, where this year's crop is expected to top U.S. production by roughly 2 billion bushels. Furthermore, the below graphic doesn't even account for the 10% retaliatory tariff still in place for U.S. commodities imported to China. That's why virtually all of the U.S. soybeans being purchased under the handshake trade deal of October 30 are being bought by state buyers for China's reserve. China remains on track to buy 12 million metric tons of U.S. soybeans by the end of February. The next question will be, when will they take shipment of the soybeans, or will some get rolled into the next marketing year?
There's been speculation about the possibility of China buying U.S. corn - even rumors of such - but USDA has yet to confirm any sales. USDA estimates that this year's Chinese domestic consumption will total 321 mmt, versus production in 2025 of 295 mmt, leaving a 26 mmt shortfall. That follows an USDA shortfall estimate of 21 mmt the previous year, and a deficit of 18 mmt the year before that. China reports relatively minor deficits. Where does the truth lie? USDA estimates that China will import 8 mmt of corn in the current marketing year, while China estimates that it will import 6 mmt. Recent small releases from China's reserve were quickly snatched up, triggering more rumors. However, rumors are also heard in China that the government will soon release up to 7.25 mmt of outdated wheat from its reserve, with 60% of it thought to be feed quality. China also has massive rice reserves, some of which are getting quite old, and are likely feed grain quality - more than 30 mmt are older than 5 years. As such, China doesn't "have to" import corn currently, but it could if it felt that current prices reflected value, and if it felt that there were political gains to be made from doing so. The odds are probably low, but the implications would be significant if it were to occur.
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A strong super El Niño has started, but the crop damage that would lift food prices is still expected to land between September and December. Indian wheat area and Southeast Asian palm oil production sit at the front of the transmission chain, with Brazil the larger unresolved question.
Damage to Black Sea ports has stalled grain exports, but the more serious risk is now forming on the farm. Collapsed farmgate prices and a Russian fuel crisis have put part of the wheat harvest in question.
August 13 – The major stock indices traded quietly mixed overnight ahead of this morning’s weekly job numbers and producer price index data. Like Wednesday, this morning’s data was considered good as well, providing support for stocks while generally allowing Treasury yields to slip a bit lower. The VIX is trading near 14.4, which is just above yesterday’s new low for the year. The dollar index is trading near 99.8. Yields on 10-year Treasuries are trading near 4.64%, while yields on 2-year Treasuries are trading near 4.15%. WTI crude oil is trading near $81 per barrel, while Brent trades near $87 per barrel. Wheat prices again firmed overnight on geopolitical risks in the Black Sea Region, while corn and soybean prices pulled back modestly from yesterday’s big gains.
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