Thanks to South American weather problems, U.S. corn exports are soaring. According to the latest weekly export sales (data for week ending Sept. 29), corn exports are up 70% above the 5 year average. Weekly net corn sales for 2016/17 were 2,060,847 metric tons. U.S. exporters continue to gobble up market share away from Brazil with South Korea and Japan being the main purchasers.
OPEC crude oil production fell in August from its record July levels, with the producer group reporting Monday that secondary sources had pegged its output for the month at 33.24 million b/d. That is a drop of about 23,000 barrels per day, which is unevenly split between the 14-member cartel. Saudi Arabia saw production increase by around +150,000 barrels per day to a new record of over 10.6 million barrels per day, while Iran’s production rose by about 50,000 barrels per day. Iraq, Ecuador, Nigeria, Libya and Venezuela witnessed output drops, while all other members saw production remain near to just slightly above the same levels as July. Total OPEC production has exceeded 33 million barrels per day for three months now. As for non-OPEC production, the cartel’s monthly report estimates it will fall by about 610,000 barrels a day this year, which is about -180,000 barrels a day less than previously forecast. The group said the change was largely due to better-than-expected production of U.S. tight oil. Global demand growth for 2016 was increased by +10,000 barrels a day to 1.23 million barrels per day, or a daily average of 94.27 million barrels. OPEC projects 2017 demand to rise by +1.15 million barrels a day to 95.42 million, unchanged from last month’s report. OPEC says despite the demand increases, they expect oil markets to remain oversupplied this year and next, with total global production surpassing demand by an average of about 760,000 barrels per day by 2017.
South Korean shipping giant Hanjin filed for bankruptcy last week, which has left ports and customers around the globe in chaos. Containers have been abandoned and retailers are in total confusion as to when their goods will be received. Hanjin’s assets are now frozen, leaving ships from China to Canada locked out of ports and unable to offload or take aboard any cargo because there is no guaranteed that tugboat pilots would be paid. As of Friday, 27 ships had been refused entry to ports or terminals. What’s more, its expected that some Hanjin vessels will be seized by charterers, port authorities or other parties. It is being reported that the breakdown in this vital shipping line could effect container shipments for two to three months, which would be a nightmare for retailers as they are preparing for the Christmas holiday season. Hanjin is the world’s seventh-largest container shipper and represents nearly 8% of the trans-Pacific trade volume for the U.S. market. The National Retail Federation, the world’s largest retail trade association, wrote to U.S. Secretary of Commerce and Federal Maritime Commission Chairmanon Thursday, urging them to work with the South Korean government, ports and others to prevent disruptions. The association says the bankruptcy is having a ripple effect throughout the global supply chain that could prove damaging to merchants, consumers and the U.S. economy. There are also concerns that the bankruptcy could sink some trucking firms that contract with Hanjin. It will also prove costly for shippers as container shipping prices shot up as much as $700 per container last week after Hanjin’s bankruptcy announcement. (Source: Associated Press, Bloomberg)
Russia is not only expected to harvest a bumper crop for the third year in a row this season, but they are also expected to overtake the EU to become the world’s largest wheat exporter. Many insiders are saying this will continue to spark fierce competition globally. Point being, since July 1, Russia has already supplied wheat to Mexico, which is usually dominated by the U.S., and booked private sales to Algeria and Morocco, traditionally France’s market. It has also shipped wheat to Mali, Malta and Myanmar for the first time in an very long period. I’m also hearing that Russia has met standards for Indonesia, generally the largest buyer of Australian wheat. The USDA expects Russia to export 30 million metric tons in the 2016/17 season, which would allow it to beat EU exports of 27 million metric tons and become the world’s largest wheat exporter. We also have to keep in mind that we are seeing a lot more competition from Kazakhstan and Ukraine as well. Bottom-line, the back-to-back big crops and devalued ruble have propelled Russia to becoming the top global exporter. There’s fear amongst the bulls that a stronger U.S. dollar could continue to give the Russian and Black Sea exporters a decisive edge over American suppliers. With a much larger than expected winter wheat crop recently harvested here in the U.S. and storage overflowing, we can’t afford to lose any business to our neighboring nations. As a producer we have to continue to keep a close eye on the U.S. dollar and perhaps the U.S. presidential polls. There’s some fear circulating that a Trump victory could create a bevy of trade wars, hence a possible boycott of some important U.S. ag exports. Again, there’s lots of moving parts, but Russia has clearly moved atop the global export leaderboard.
Venezuela wants to tackle its food shortage crisis by forcing citizens to work in the country’s fields, something that human rights groups are calling “unlawful” and some have even said is broaching on government sanctioned slavery. Venezuelan President Nicolas Maduro has declared a state of economic emergency, which gives him almost total executive control via decree, with not need for Congressional approval. The new decree, Resolution No. 9855, would establish a “transitory labor regime”. Essentially, the state would by law be able to force workers from their current jobs and make them work on farms for 60 days, or more “if circumstances merit.” The decree does stipulate that workers will be paid the same as their normal salaries and that their private sector employers are not allowed to fire them. Venezuela has been propelled into a stunning economic crisis stoked by low oil prices that have brought to a head years of fiscal mismanagement. Nearly 95% of the country’s income is derived from oil revenues. As we know, the price of oil has fallen by more than half over the last two years, leaving Venezuela severely short on cash. Aside from near-total oil dependence, policies enacted by Maduro, as well as his predecessor Hugo Chavez, completely neglected the agricultural sector as they chose to import goods instead, all the while supporting very generous social programs in order to generate support for the government. In the end, they effectively created the world’s worst economy, where inflation is approaching +700% and “food riots” are a daily occurrence. Venezuela’s grocery shelves are empty and the government has no money to import goods. So forced farm labor is Maduro’s answer to the crisis. Amnesty International compared the plan to “trying to fix a broken leg with a band aid.” Any farmer, or even a hobbyist gardener, knows that it will take at least one full season to increase domestic food production, and realistically, more like two or three to increase it substantially. If Maduro does indeed try to enforce this decree, you have to imagine it may be the last straw for Venezuelans. There is already a petition to recall Maduro, but there is worry that people are so desperate they could soon rise up and try to completely overthrow the government. Keep your eye on this situation as it’s really starting to heat up…