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Commodities 2022: China's soybean demand set to slacken in H1 on shrinking sow herd

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Commodities 2022: China’s soybean demand set to slacken in H1 on shrinking sow herd

China’s soybean demand is expected to be sluggish in the first half of 2022 on the back of weakening crush margins, which is likely to dampen the euphoria surrounding record demand forecasts by key agencies.

While the US Department of Agriculture projects China to import 100 million mt of beans in marketing year 2021-22 (September-August), S&P Global Platts Analytics sees the import volumes at record 102 million mt on the back of strong hog herd growth in the country.

However, many China-based crushers are not that optimistic.

China is heavily dependent on soybean purchases as it processes more than 80% of imported beans into animal feed, but with the country’s sow herd on a downtrend over the last few months, the crushers expect the oilseed demand to slacken at least in the first half of 2022.

China’s fledgling pig population is recovering from the adverse impact of the African swine fever epidemic, which first emerged in the country in August 2018 and resulted in the loss of over 50% of its swine population within a year.

“Pig farmers have lost hundreds of yuan on each pig during the second half of 2021, which has forced many breeders to reduce their capacity,” a China-based crusher said. And reduced pig numbers are likely to severely impact demand for soybean-based animal feed, he said.

In addition, if China’s soybean imports data in 2021 is anything to go by, the crushers’ worries could be well-founded.

Total soybeans import by China from January through November was estimated at 87.65 million mt, down 5.5% on the year, according to the customs data.

Declining hog herd

Animal feed demand was at the core of China’s voracious appetite for soybeans in the last decade, but declining hog herd in the latter half of 2021 has resulted in slackening of soy-based pig feed demand.

According to the Ministry of Agriculture and Rural Affairs, or MARA, China’s sow herd at the end of November was estimated at 42.96 million heads, down 1.2% on previous month.

The breeding sow herd has been on a consecutive negative growth since July 2021, MARA’s data showed.

Typically, there is a six-month lag between pig herd’s negative growth and the resultant slowdown in pig feed purchases. Therefore, all indications point to a sluggish demand for soybean-based animal feed, at least in H1 2022.

The negative growth trend of pig herd may persist well into 2022, an analyst from China-based crushing company said. “The destocking pressure is likely to grow larger in Q1 2022, when the pork consumption slumps after the Chinese New Year,” he said.

Pig oversupply has caused pork prices to slide in 2021, pushing hog margins into negative territory, which in turn has pressured the crush margins.

According to Platts assessments, the monthly average of China’s gross soybean crush margin has been estimated at negative 5.8 $/mt between June through December 2021, compared with 11.8 $/mt in the first five months of the year.

Crush margin is the profit derived from processing soybeans into soybean meal and oil.

Soybean substitutes

China’s soybean demand faces another headwind in 2022 in the form of government’s attempts to reduce soybean usage to control inflation.

The Ministry of Agriculture, or MOA, has already established a national standard of compound feed for raising piglets, in order to cut average protein consumption.

By adding soybean meal substitutes, such as wheat, the low protein diet has been well adopted in large-scale pig farms, with feed protein level dropping to 13.6%, about 2 percentage points lower than the industrial average, MOA said.

“If the low-protein substitutes are used nationwide as animal feed, China’s soybean demand could reduce by 20.41 million mt in a year,” said Qin Yinglin, chairman of Muyuan Foodstuff, a leading pig farming company.

Freight volatility may alter buying pattern

Soaring freight rates have been taking a larger share of input cost for soybean trade in China. And this trend is likely to persist in 2022.

In 2021, the average freight rate of Brazil to North China had increased more than 60% on the year as fuel prices spiked and supply chain bottlenecked amid frequent port congestion.

As a result, crushers have been facing relentless pressure on their margins since early 2021.

Soybean demand coverage for January 2022 shipment is only 76% done, compared with 100% in the same period in 2021, as volatile freight costs have made crushers very cautious.

Facing negative margins since mid-2021, crushers postponed their soybean purchases and waited for better margins.

However, the margins didn’t improve as the freight rates surged 100% on the year in the last two quarters in 2021, Platts data showed.

China-based traders are concerned that the freight rates are showing no signs of easing going into 2022, especially with the re-emergence of COVID-19 in the country.

“Soaring freight costs, volatile crude oil prices, unsteady supply chain and rising coronavirus cases in China have stoked uncertainty in the country’s crush sector,” a China-based crusher said. Moreover, any unexpected change in crude oil supply will roil the freight rates, he said.

The unpredictability in the freight costs has made crushers very cautious in their buying patterns.

“With such uncertainties prevailing amid declining crush margin, the Chinese soybean buyers will continue to postpone their usual purchasing plans and take more opportunistic strategies to secure a better margin later,” a China-based beans trader said.

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Platts proposes to launch global soybeans arbitrage price matrix

S&P Global Platts proposes to launch a daily global soybeans arbitrage price matrix to reflect the competitiveness of each major export origin delivered to China,…

News and Insight

Platts proposes to launch global soybeans arbitrage price matrix

S&P Global Platts proposes to launch a daily global soybeans arbitrage price matrix to reflect the competitiveness of each major export origin delivered to China, the world’s largest soybeans importer. The proposed soybeans arbitrage price matrix would launch March 16, 2022.

The proposed price matrix will reflect the replacement values and profit margin calculations, in USD, associated with the import of soybeans from the US Gulf Coast and Brazil at destinations in North China.

As the worlds largest importer of soybeans, China imports more than 60% of soybeans traded worldwide, or 95 million mt of soybeans on average over the past five years.

The soybeans arbitrage price matrix will reflect replacement and profit margin calculations twice a day, first at 4:30 pm Singapore time, in line with the Market on Close timestamp of the existing Platts SOYBEX CFR China assessment and at 5.30 pm Sao Paulo time, in line with the Market on Close timestamp of the existing Platts SOYBEX FOB Santos assessment.

As part of this matrix, Platts proposes to use the following existing assessments:

1. SOYBEX CFR China (M1) – SYBAB00

2. Soybeans CFR China basis (M1) – SYBAA00

3. SOYBEX FOB Santos – SYBBB00

4. Soybeans FOB Santos basis – SYBBA00

5. SOYBEX FOB New Orleans – SYBBI00

6. Soybeans FOB New Orleans basis – SYBBJ00

7. Freight route PP26. Santos, Southeast Brazil to Qingdao, North China – GRSQC00

8. Freight route PP35. New Orleans, US Gulf Coast to Qingdao, North China – GRNOQ00

Platts also proposes to launch the following net forwards and margin calculations:

1.1. Brazil CFR China Soybeans Replacement Asia close:

Will be calculated in cents/bushel at the Asian close by adding the overnight SOYBEX FOB Santos basis assessment to the freight assessment PP26 Santos, Southeast Brazil to Qingdao, North China

1.2. US Gulf CFR China Soybeans Replacement Asia close:

Will be calculated in cents/bushel at the Asian close by adding the overnight SOYBEX FOB New Orleans basis assessment to the freight assessment PP35 New Orleans, US Gulf Coast to Qingdao, North China

1.3. Brazil CFR China Soybeans Replacement Americas close:

Will be calculated in cents/bushel at Americas close by adding the overnight SOYBEX FOB Santos basis assessment to the freight assessment PP26 Santos, Southeast Brazil to Qingdao, North China

1.4. US Gulf CFR China Soybeans Replacement Americas close:

Will be calculated in cents/bushel at Americas close by adding the overnight SOYBEX FOB New Orleans basis assessment to the freight assessment PP35 New Orleans, US Gulf Coast to Qingdao, North China

1.5. Quality spread with Brazil:

Will reflect the quality spread of Brazilian origin soybeans versus US Gulf-origin soybeans.

1.6. Normalized Brazil CFR China Soybeans Replacement Asia close:

Will be calculated in USD/mt at Asian close by adding the overnight SOYBEX FOB Santos assessment to the Brazil-US quality spread and freight assessment PP26 Santos, Southeast Brazil to Qingdao, North China

1.7. Normalized US Gulf CFR China Soybeans Replacement Asia close:

Will be calculated in USD/mt at the Asian close by adding the overnight SOYBEX FOB New Orleans assessment to the Brazil-US quality spread and the freight assessment PP35 New Orleans, US Gulf Coast to Qingdao, North China

1.8. Normalized Brazil CFR China Soybeans Replacement Americas close:

Will be calculated in USD/mt at the Asian close by adding the overnight SOYBEX FOB Santos assessment to the Brazil-US quality spread and the freight assessment PP26 Santos, Southeast Brazil to Qingdao, North China

1.9. Normalized US Gulf CFR China Soybeans Replacement Americas close:

1.10. Brazil CFR China Soybeans Margin Asia close:

Will be calculated at the Asian close from SOYBEX CFR China assessment minus the Normalized Brazil CFR China Soybeans Replacement Asia close.

1.11. US Gulf CFR China Soybeans Margin Asia close:

Will be calculated at the Asian close from SOYBEX CFR China assessment minus the Normalized US Gulf CFR China Soybeans Replacement Asia close.

1.12. Brazil CFR China Soybeans Margin Americas close:

Will be calculated at Americas close from SOYBEX CFR China assessment minus the Brazil CFR China Soybeans Replacement Americas close.

1.13. US Gulf CFR China Soybeans Margin Americas close:

Will be calculated at Americas close from SOYBEX CFR China assessment minus the US Gulf CFR China Soybeans Replacement Americas close.

Please send any feedback, questions or comments on the proposed soybeans arbitrage price matrix by Feb. 9, 2022 to ags@spglobal.com and pricegroup@spglobal.com.

For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available upon request.

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High natural gas prices could lead to spike in food costs through fertilizer link

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High natural gas prices could lead to spike in food costs through fertilizer link

Global fertilizer prices soared to multi-year highs in the past few months following surge in prices of key feedstocks natural gas and coal, and certain export restrictions put in place by supplying countries.

Around the globe, natural gas is used as a raw material as well as fuel for nitrogen fertilizer production. In some countries such as China, coal is gasified into ammonia and used for manufacturing fertilizers.

Nitrogen fertilizers are the most used fertilizers in the world. Ammonia, phosphorous and potash are the other important fertilizer components.

According to the European crop nutrient company Yara Fertilizers, in several of their transformation steps, natural gas, essentially methane, is upgraded by combination with nitrogen from the air to form nitrogen fertilizer.

“While 80% of the gas is used as feedstock for fertilizer, 20% is used for heating the process and producing electricity,” according to Yara.

Unsurprisingly, when natural gas prices rose, prices of nitrogen fertilizers also shot up. In fact, prices of nitrogen—as anhydrous ammonia, urea, or liquid nitrogen, phosphorus as diammonium phosphate, or DAP, and potassium as potash—all gained significantly over the past year.

China’s ban since September 2021 on exporting phosphate fertilizer to ensure domestic supply supported fertilizer prices. Russia also banned fertilizer exports soon after.

China, India, the US and Brazil are the world’s top fertilizer consuming countries and are also key producers of major agricultural products.

China’s ban and fertilizers in India

China, the leading fertilizer supplier globally, banned exports of fertilizers and urged coal and natural gas companies to fulfil contracts signed with domestic producers of fertilizers.

The effects of this ban are seen in the neighboring country, India.

India imports an average 60% of the 10 million-12 million mt of its annual DAP consumption. According to an early-December Reuters report, 40% of this comes from China.

As India entered its winter or Rabi cropping season in November, demand for fertilizers in the country is likely to peak. The Reuters report mentioned cases have already emerged of Indian farmers facing delays or disruptions on the fertilizer supply side.

India produces all its wheat in the winter sowing season along with some oilseeds, pulses and corn.

India is also a manufacturer of fertilizers and the country’s fertilizer sector relied on LNG imports for between 60% and 73% of its natural gas feedstocks in January to October 2021.

S&P Global Platts Analytics data showed contracted LNG supply of 24.3 mt/year cover just over half of India’s regasification capacity each year, suggesting the country has a relatively large exposure to spot LNG imports.

Spot LNG prices have surged beyond the $11-$12/MMBtu range deemed affordable for end-users, India’s LNG importers told S&P Global Platts.

Indian importers could have tapped contracted term LNG for supply to the fertilizer sector. But these contracts are typically benchmarked against Brent crude, the price of which has almost doubled on year. Platts-assessed Dated Brent benchmark has been trending at above $70/b since October, up from the mid-$30s to mid-$40s range seen from early October to early December in 2020.

Platts-assessed JKM spot LNG prices and Europe TTF soared past $56/MMBtu and Eur 100/MWh, respectively, in early October. These prices have eased since peaking in October and were trading at around $33/MMBtu this week.

Global fertilizer scenario

Fertilizer shortages and high prices are being felt across the globe.

Owing to the higher natural gas prices in Europe, various fertilizer companies were shut, leading to concerns around supply.

Yara Fertilizers said the record high natural gas prices in Europe are affecting ammonia production margins, and as a result the company curtailed production at several of its plants.

In the US, input costs for farmers have gone up with fertilizer prices soaring. The US is the largest producer of corn globally and corn is a highly-fertilizer intensive crop.

US corn farmers have talked about moving to different crops such as soybeans or reducing their usage of fertilizers in the upcoming planting season if prices continued to be firm.

Soaring fertilizer prices are also likely to impact Brazil’s largest corn crop, which will be planted starting this month.

An end date to higher fertilizer prices is unknown, American Farm Bureau Federation’s economists were quoted saying during their annual convention Jan. 8.

A report released by Texas A&M University in a January echoed the view, “Regardless of the factors driving the increase in costs, the reality on the ground is that producers are facing the prospect of a huge increase in costs going into the 2022 Spring planting season.”

Food inflation worries

This has come at a time when food inflation globally is already at multi-year highs. The high fertilizer prices could eventually reflect in the cost of food that is produced.

“High natural gas prices, if sustained through early 2022, will translate into higher food costs and reinforce an inflationary trend that is already being driven by supply chain disruptions, labor shortages and increased demand from the biofuels sector,” an IHS Markit update said in October.

In 2021, the United Nations Food and Agriculture Organization’s Food Price Index averaged 125.7 points, up 281.1% on the year, and highest in the last 10 years.

Along with soaring prices, there are also concerns around fertilizer availability, which is likely to impact planting. If farmers cut back on the usage of fertilizers due to tight supply, this could ultimately put pressure on yield and production.

History suggests quite firmly that farmers are not prepared to buy “normal” volumes at current price levels for fertilizers, said IHS’ update. “The last time potash prices were at current levels for a sustained period [2009] global annual demand almost halved,” it added.

If natural gas prices are sustained at current levels or go higher, agricultural prices and especially corn will need to stay high to maintain needed acres and again, this will feed into higher food prices, it said.

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Ukraine’s 2021-22 wheat exports up 29% on year, prices stabilize

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Ukraine’s 2021-22 wheat exports up 29% on year, prices stabilize

The momentum of wheat exports from Ukraine slowed down over the week to Jan. 24 but overall shipments remained nearly 29% higher on the year, agriculture ministry data showed Jan. 25.

Wheat prices had been softening for the past few weeks due to the ongoing tensions between Ukraine and Russia. However, export quotes stabilized over the past few days on hopes of firm exports in the near-term.

S&P Global Platts assessed FOB prices of 11.5% protein wheat from Ukraine at $320/mt on Jan. 24, steady since Jan. 20.

Ukraine’s wheat exports since the start of marketing year 2021-22 (July-June) through Jan. 24 were at 16.6 million mt, up from 12.9 million mt in the corresponding period during the previous year. Ukraine had shipped 16.64 million mt of wheat in MY 2020-21.

With Ukraine running a promising export campaign in MY 2021-22, a supply tightness may also boost prices in the near term.

S&P Global Platts Analytics projected Ukraine to export 22.5 million mt of wheat in MY 2021-22, while the US Department of Agriculture forecast the country’s wheat exports at 24.2 million mt in its World Agricultural Supply and Demand Estimates report Jan. 9.

However, with an increase in domestic prices amid rising external demand, Ukraine is mulling a 4 million mt limit on wheat exports till June to cool off prices.

The government had also signed a pact with traders in October 2021 to limit wheat exports to 25.3 million mt in MY 2021-22.

Ukraine harvested around 33 million mt of wheat in MY 2021-22, up from 25.4 million mt in MY 2020-21, according to the ministry.

Platts Analytics has projected Ukraine’s wheat production at 31.2 million mt for MY 2021-22. The USDA has pegged Ukraine’s wheat output for the year at 33 million mt.

Farmers in Ukraine planted winter wheat across 6.2 million hectares for MY 2022-23 as of Dec. 30, 2021 accounting for nearly 94% of the forecast area of 6.7 million hectares, according to agriculture ministry data.

Russia-Ukraine tensions impact

Despite the increase in exports, Ukraine’s wheat export prices have shed nearly 3% on the month amid escalating tensions at the Ukraine-Russia border.

The two countries are major players of the global grains market and their combined wheat exports account for 23% of global total of 206.9 million mt, according to forecasts from the US Department of Agriculture for the 2021-22 marketing year.

Despite the tensions, traders expect the demand for Ukraine’s wheat to remain upbeat in the near term as Russia has restructured its export tax mechanisms and imposed an export quota from Feb. 15.

“Demand for Ukrainian wheat is likely to increase from middle-eastern countries as the shipments from Russia may be limited further. However, there are some uncertainties due to tensions that may impact the prices,” a Kyiv-based trader said.

The ongoing tensions may however, weigh on prices of wheat in the Black Sea region, particularly Ukrainian wheat, some traders believe.

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Commodities 2022: Brazilian ethanol price drivers to remain volatile

Sugar’s strong price premium over ethanol, volatility in the Brazilian real/US dollar exchange rate, and unknown changes in the Petrobras ex-refinery gasoline price will remain…

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Commodities 2022: Brazilian ethanol price drivers to remain volatile

Sugar’s strong price premium over ethanol, volatility in the Brazilian real/US dollar exchange rate, and unknown changes in the Petrobras ex-refinery gasoline price will remain key drivers for Center-South ethanol prices in 2022.

Sugar premium over ethanol

“Although the 2022-23 crop should witness a slightly higher sugar mix at 46.2% compared to 45.2% for the 2021-22 crop, we anticipate more sucrose will be diverted to ethanol production for the first few months of the crop cycle until existing ethanol stocks reach a more comfortable level,” according to a report from S&P Global Platts Analytics. “Afterwards, crushing will be primarily focused on sugar production because our forward-looking guidance is pointing toward a market environment where sugar production will be paying a premium over ethanol production.”

NY11 front month sugar futures provided an average 1.36 cent/lb premium to Platts assessed hydrous ethanol ex-mill Ribeirao Preto converted into raw sugar equivalent during 2021.

When Center-South mills maximize their sugar production over ethanol production, a monthly average around 1.7 billion-2 billion liters of ethanol will be produced. On the other hand, if mills maximize their ethanol production, a monthly average around 2.5 billion-3 billion liters of ethanol will be produced.

Given current monthly ethanol demand of around 1.9 billion-2.4 billion liters, this ability to add or subtract around 1 billion liters per month to the supply of ethanol is a huge factor in the price discovery mechanism for ethanol prices throughout the year.

Brazilian mills, which are flex mills, have the unique ability to make minute adjustments in the ratio of their ethanol and sugar production based on which product is paying the highest market premium. These quick adjustments implemented by hundreds of flex mills situated in the Center-South can increase or decrease the potential supply of ethanol in the billions of liters and affect the future sugar supply in the millions of metric tons.

Brazil real/US dollar exchange rate volatility

Volatility in the exchange rate between the Brazilian real and the US dollar will continue to drive Brazilian ethanol mills’ decision making in 2022 to prioritize sugar or ethanol production.

“An appreciation of the Brazilian real closer to 5.00/$1 will swing the premium to favor ethanol production by approximately 140 points over sugar production assuming current sugar and ethanol prices remain relatively stable,” a Sao Paulo-based trader said. “On the other hand, a depreciation in the Brazilian real closer to 6.00/$1 will swing the premium to favor sugar production by approximately 190 points.”

The Brazilian real against the US dollar exchange rate will also decide the volumes of ethanol imported into Brazil from abroad and ethanol volumes exported from Brazil due to arbitrages opening and closing in international ethanol markets.

The Brazilian real is expected to be highly volatile in 2022 as it was in 2021, testing record-low exchange rate levels, which solidified the sugar-production premium over ethanol production and closed the import arbitrage for ethanol by a wide margin.

The most recent price data of the Brazilian real/US dollar exchange rate has a current 100-day historic volatility of 14.56% compared to the US Dollar Index having a 100-day historic volatility of 4.83%.

An 14.56% 100-day historical standard deviation points to the probability that the Brazilian real within the next 100 days could potentially experience a 14.56% price move, either an appreciation or depreciation against the US dollar. This would mean a real-to-dollar exchange rate potential trading band of Real 6.50/$1 to Real 4.85/$1 in the next 100 days.

Petrobras ex-refinery gasoline price movements

Current Petrobras CEO and ex-minister of defense Joaquim Silva e Luna has decreased the number of Petrobras ex-refinery gasoline and diesel price changes compared to his predecessor, Roberto Castello.

Roberto Castello was removed by President jair Bolsonaro in February 2021 over multiple diesel and gasoline price increases, which increased fears of a truckers strike at the time, and ultimately would not be expected to bode well for Balsonaro’s political ambitions.

Petrobras has made 16 ex-refinery gasoline price changes during 2021, much less than the 45 ex-refinery gasoline price changes during 2020, all of which have a major effect on ethanol prices and this trend is expected to continue into 2021.

Market participants anticipate the pace of ex-refinery gasoline price changes instituted by Petrobras in 2022 will be in line with 2021 as long as Joaquim Silva e Luna remains president of Petrobras.

Petrobras utilizes a fuel-pricing policy, which include international energy and foreign exchange components, to ensure Brazilian domestic prices are in line with international markets.

Market participants use Petrobras ex-refinery gasoline price increases as a discounting mechanism for ethanol prices because the gasoline price increase ultimately felt by consumers at the pump will put pressure on hydrous ethanol prices in the near term.

Consumers with flex-fuel vehicles can fill their tanks with either gasoline, which has a blend of 27.5% anhydrous ethanol, or E100. Consumers generally fill their tanks with E100 only when its price is 70% or less than the gasoline price, because of hydrous’ lower energy content. Any changes in the ex-refinery price of gasoline can alter this delicate price balance.

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Commodities 2022: Ukrainian corn prices likely to be strong on demand, rising costs

The Ukrainian corn prices are expected to be strong through the first half of 2022 on demand from main importers and potential production decrease in South America.

Ukraine — a leading global corn producer — has seen firm prices for the past few months on demand from China and harvest delays, despite bumper crop expectations.

In 2021-22 (October-September) marketing year, Ukraine is likely to produce 40 million mt of corn, almost 10 million mt higher than last year, according to S&P Global Platts Analytics, with 38% higher export potential this year at 33 million mt. Some analysts predicted the corn crop above 40 million mt though. If the higher potential proves to be true and if the additional volume is harvested, it can be a bearish factor in 2022.

The world corn balance also appears to be heavier than last year, exercising pressure on the global corn market. The US Department of Agriculture, or USDA, estimated the world’s 2021-22 corn production at 1.208 billion mt, 8% higher from the previous year, with the ending stocks rising by 4% to 305.5 million mt, according to its December World Agricultural Supply and Demand Estimates, or WASDE, report.

However, the prices remained firm in Ukraine following harvest delays, resulting in low availabilities in ports and a decent demand from China.

Demand from China seen strong

China imported 3.3 million mt of corn from Ukraine in October through December, with already around 700,000 mt in lineup for January, according to logistic companies and market sources.

China is expected to keep importing corn from Ukraine in the first half of 2022, according to sources, with total MY 2021-22 corn imports from Ukraine likely to amount to 6 million-7 million mt. “It seems like right now China’s still likes the label non-Genetically Modified corn. So that’s why Ukraine still kind of sits pretty well,” said Matt Ammerman, commodity risk manager, vice president of the Eastern Europe/Black sea region with Stone X.

China’s recovering hog-herd from African Swine Fever in 2018-19 — when up to 40% of hogs population was lost — alongside ambition to become self-sufficient in pork production has kept the country’s imports on the move. China’s corn demand for 2021-22 was seen at 26 million mt by the USDA.

However, China’s corn output in MY 2021-22 was seen rising to 272.55 million mt from 260.67 million mt in MY 2020-21, according to China’s Agriculture Supply and Demand Estimates. This was raising some doubts on China’s corn import intentions. Platts Analytics sees China’s 2021-22 corn imports at 22 million mt.

At the same time, the export pace from Ukraine has been same as last year so far due to lower demand from other importers, harvest delays and tight logistics in the country. Exports from October through December amounted to 8.8 million mt, according to the ministry of agriculture and market participants, same level as last year.

Corn imports by the EU — the leading corn importer from Ukraine — were maintained at the same level on the year at around 15 million mt by USDA.

The EU imported 6.5 million mt of corn from July 1-Dec. 19, 2021, according to the European Commission, compared with 8.2 million mt during the same period in 2020. This gives good opportunity for Ukrainian corn in the first half of 2022 though it will be competing with Brazil for the EU market.

Meanwhile, the safrinha corn in Brazil, which accounts for most of the country’s exports, will not hit the market in significant quantities till July 2022.

Stiff competition unlikely in H1 2022

Ukraine will also compete with Argentina in the first half of 2022 for the Middle-Eastern destinations in particular. The harvest is expected to start in mid-February to March in Argentina. “Argentina, on the other hand, is likely to be a strong competition to Ukraine given the price benefit,” Ammerman said.

However, corn crop conditions in Argentina have been deteriorating due to dry and hot weather conditions and only 58% crop was reported to be in good to excellent conditions as of Dec. 30, according to Buenos Aires Grains Exchange, or BAGE.

Even though some rains are expected in the coming weeks, the Argentinian corn production in MY 2021-22 may decrease from the current estimates of 57 million mt by BAGE and 54.5 million mt by USDA. This is expected to support prices.

Rising input cost

The higher cost of fertilizers worldwide is going to add to the production cost for corn, and potentially to prices, sources said, although the impact may be limited, they added.

In Ukraine, the cost of growing corn will probably grow by around 30%, sources said, leading to some reductions in fertilizer usage.

Farmers, however, should have financial buffer this season, following high corn prices, said Elena Neroba, a market analyst with grain trading firm Maxigrain. This has allowed farmers to finance the planting campaign in spring almost without decreasing fertilizer inputs, Neroba added.

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US EPA looks to get new biofuel feedstocks to market quicker with streamlined review

The US Environmental Protection Agency Jan. 21 announced plans to streamline reviews of new chemicals that could be used to produce biofuels and in turn displace dirtier transportation fuels.

The initiative, under the Toxic Substances Control Act, aims to support the Biden administration’s overall push to confront the climate crisis as well as the congressionally mandated goal of the Renewable Fuel Standard program to replace a portion of US petroleum-based transportation fuel, heat oil and jet fuel consumption with biofuels that are projected to have fewer lifecycle greenhouse gas emissions.

“Using sound science to streamline the review of more environmentally friendly chemical substitutes will help advance the agency’s climate goals and protect human health and the environment,” Michal Freedhoff, assistant administrator for the EPA’s Office of Chemical Safety and Pollution Prevention, said in a statement.

The Renewable Fuels Association welcomed the new effort.

RFA CEO Geoff Cooper said it “clearly shows the great potential of low-carbon ethanol to serve as a key building block for other renewable chemicals and sustainable products in the future.”

The EPA’s new chemicals program manages the potential health and environmental risks posed by chemicals new to the marketplace. It allows the agency to set conditions, including a ban on production if necessary, on the use of new chemicals and requires any company that plans to manufacture or import a new chemical for commercial purposes to provide notice to the EPA before initiating such activity.

These pre-manufacture notices (PMNs) include information such as the chemical’s structure and formula, intended use, production volume, byproducts, disposal practices and any existing test data on effects to human health or the environment.

EPA risk assessors review this information and the agency ultimately decides whether the new chemical or significant new use present an unreasonable risk and if a company can move forward with manufacturing or processing.

The EPA said in a press release that it has received more than 30 PMNs that, if collectively allowed to proceed, would allow for the production of nearly 800 million gallons per year of advanced biofuels. Those advanced biofuels “could contribute to annual volume mandates under the RFS program and help support the goals of energy security through increasing domestic production within the US,” the EPA said.

New approach

As such, the agency has formed a dedicated team to review PMNs for biobased or waste-derived feedstocks intended to be used to make transportation fuel substitutes.

The agency said the team will “use the best available science while creating a consistent and efficient review process” premised on standardized procedures developed by EPA’s New Chemicals Division to guide the way biofuel PMNs are reviewed.

As part of the new streamlined approach, the EPA “will generate one report for biofuels PMNs that combines the six different risk assessments typically conducted for PMNs, which will help provide a clearer summary explanation of how EPA conducted its assessment and made its determination,” the agency said. It added that appropriate mitigation measures would be applied to address any potential for unreasonable risk identified during the review process.

Further, the agency will offer outreach and training on the new biofuels initiative, with a kickoff meeting scheduled for Feb. 9.

That and future webinars for stakeholders in the biofuels sector will focus on reviewing TSCA requirements, explaining the new streamlined process for risk assessments and risk management actions and ensuring interested parties understand how to navigate the new chemicals PMN process.

As of Jan. 1, the EPA reported that there were 313 cases in the chemical review process, including PMNs, significant new use notices and microbial commercial activity notices. The agency said it may provide training opportunities to all new chemical submitters, not just those in the biofuels sector, if stakeholder interest and feedback warrants further outreach.

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South American drought likely to fuel US soybean demand in 2022

The US soybean demand in 2022 is likely to get support from a prolonged drought at its top rivals — Brazil and Argentina — analysts told S&P Global Platts, which could propel prices in the coming months as well.

According to Platts assessments, SOYBEX FOB New Orleans for March loading was estimated at $555.93/mt on Jan. 24, up 8% on the month, while SOYBEX FOB Santos was assessed at $544.93/mt, up 8.5% on the month.

With every 1 million mt dip in the Brazilian soybean production in the crop year 2021-22 (September-August), the US soybean’s export demand could potentially soar by an equivalent volume of 1 million mt simultaneously, analysts said.

Major agricultural agencies and consultancies have already begun slashing their forecasts for the Brazilian beans output in 2021-22 as the southern states of the country continue to reel under severe drought since November.

While the US department of Agriculture has cut Brazilian soybean production expectations in 2021-22 by 5 million mt on previous estimates to 139 million mt in its latest World Agricultural Supply and Demand Estimates, Brazilian national agricultural supply company Conab has also reduced its projections by 2 million mt to 140.5 million mt.

Despite the cuts, if we go by the latest output forecasts from both Conab and the USDA, Brazil is still on its way to produce an all-time high soybeans crop, which will also be at least 2.5 million mt higher than last year’s record level of 138 million mt.

But some local analysts are not convinced that Brazil will harvest such high volumes amid prolonged drought in the southern region and believe the USDA and Conab have underestimated the dry conditions. Some Brazil-based consultancies have in fact cut their expectations by as much as 12 million mt in January.

Curitiba-based AgRural expects Brazilian soybean output in 2021-22 at 133.4 million mt, down 11.3 million mt on previous estimates, while Porto Alegre-based Safras & Mercado has reduced its expectations by 12.4 million mt to 132.3 million mt.

The situation in Argentina is not ideal either, with almost the entire country engulfed in a drought since November. As a result, soybean crop conditions in the country have plummeted drastically within a couple of weeks into January.

According to the Buenos Aires Grains Exchange, or BAGE, of the planted soy crops, 30% were in good-to-excellent condition through Jan. 19, down 18 percentage points on the week and 57 points lower since late December.

Although, the country has received beneficial rainfall in recent days, long-term forecast signals return of dry conditions in February. As a result, there is a very definite possibility of significant deductions in the Argentinian soybean production forecast for 2021-22 amid rapidly deteriorating crop quality.

From the early season forecast of over 50 million mt, the Argentinian soybean output could dip as low as 40 million mt, if the dry conditions do not ebb in the coming weeks, a local agricultural analyst said.

Both Brazil and Argentina accounted for almost 50% of total global soybean supply in 2020-21, according to the USDA data.

“I’ve been warning about the ongoing drought in the Southern Cone [Latin America] for months,” said Jacob Shapiro, founder and chief strategist at Perch Perspectives, a consulting firm. “The [record] soybean projections for the region never made sense, especially once it was clear a double-dip La Nina was on the cards,” he said.

Advantage to US beans

With all indications pointing towards tightening of global soybean supply in the first half of 2022, the focus has uncharacteristically shifted towards the US soybean supply.

Typically, in a first half of a calendar year, the South American oilseed supply peaks, coinciding with the harvesting season. But 2022 could well be an exception amid historic drought in Latin America.

“South America drought will play to an advantage for the US soybean demand because the country could supply more beans to the international market,” Shanghai-based commodity consultancy JCI China told Platts.

However, JCI was quick to adopt a cautious approach on any potential shift of China’s soy demand towards the US.

“We don’t see any significant shift in China’s demand from Brazil to the US in Q1 of 2022 due to the drought issue,” JCI said.

Mirroring JCI’s sentiments, Pete Meyer, head of grain and oilseed analytics at Platts, said, “Since the earlier-harvested Brazilian soybeans seem to be yielding very well so far, the only potential advantage for US exporters may occur when the drought-hit southern Brazilian states get harvested later.”

But, according to some market sources in China, the world’s largest beans importer is actively seeking large volumes of US soybeans for October-November deliveries.

“China is likely to use US beans as a hedge against the potential tightness of South American beans supplies in 2022,” a Shanghai-based analyst said.

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