🌽 China's Corn Obsession + A Palletpalooza, Brazil's Ag Woes, and more...

China appears to be using the Pac-Man strategy for buying corn. It’s pretty simple... Gobble up everything in sight.

By the numbers:

In the 2020-2021 marketing year (ends on Aug. 31), China has agreed to purchase 22.8 million tonnes of U.S. corn. 56% of that had already been shipped by May 13.
New crop corn is where things have really heated up. China has already purchased 10.7 million tonnes of corn for the 2021-22 marketing year, which doesn’t even start until September 1.
Of that 10.7 million, 8.2 million tonnes of corn has been booked since May 10, marking a historic pace of U.S. export sales.

China is typically a picky price buyer in the global markets, but with U.S. corn prices holding strong at levels not seen in years, something has obviously changed.

And it’s a pretty simple explanation. China needs corn and wants to be first in line to get it.

Plus, this: The struggling Brazilian corn crop. Conditions for their second corn crop have been extremely dry, and there isn’t much relief in sight. Some in the industry think there could be 10 million tonnes of production lost in the next two weeks. With a U.S. corn crop starting the season with historic levels of drought in some areas, China isn’t waiting to see how the markets play out.

Worth noting: China expects to see their hog herd reach pre-African Swine Fever (ASF) levels by July, with slaughter rates back to pre-ASF levels by November. And those pigs gotta eat.

If the herd build-backs are true, don’t expect China’s Pac-Man strategy to go anywhere anytime soon.

→ Chicken construction delays. Despite record-breaking demand for chicken, Sanderson Farms CEO noted last week that the company’s new processing plant might be delayed due to rising corn and soy prices, plus crazy-high building costs.

→ Heavy-lifting. Seven cargo ships filled with ag commodities in Argentina had to be towed to sea after they were overloaded in the port of Rosario and couldn’t exit the region’s increasingly shallow waters.

→ Doubling down on Deere & Co. John Deere is bullish on their fiscal 2021 net income being +$5 billion as the company just released earnings last week with a 169% spike in quarterly profit.

→ Don’t count the schnitzel out. German pig prices are on the rise as restaurants reopened around the country. Plus, lost sales to China who balked at German ASF cases were redistributed to European neighbors.

→ Sending a soy SOS: U.S. soy crushers and meat producers are on track to import the largest volume of soybeans from Brazil since 2014 as domestic prices and tight supplies force many to look to international suppliers.

→ Thailand needs buffalo bug spray. The Asian nation is limiting the movement of cattle and buffalo due to a new virus, carried by flies and mosquitos, that leads to skin lumps and reduced milk production.

→ Rural broadband could get a makeover. Republicans in the House Ag Committee want to spend $7.35 billion over three years to beef up internet access in the country’s most remote and least served areas.

As if 2021 didn’t have enough supply chain challenges, slim pickings of wood pallets are now impacting the produce packing industry (say that five times fast).

And when you’ve got shortages, you’ve got price increases. Like, 400% pallet price increases.

It’s a perfect storm of factors:

Strong consumer demand for goods rather than services
Lumber shortages and price increases
Lack of trucks to position available pallets
Stockpiling of non-perishables on pallets to protect from pandemic shortages
Pinterest pallet projects (just kidding, but really?!)

Talk about bad timing: The shortage is expected to have unpalatable effects just as seasonal harvest and shipments begin for many produce crops. Produce availability to consumers is at risk, and retail prices may increase as growers and distributors navigate yet another supply chain challenge.

A soundbite: “If there is not a concerted effort across the supply chain to ensure pallet availability for shipment of produce, there is little doubt that it will be very difficult, if not impossible, for the grower-shipper community to meet buyer, and ultimately consumer, demand for produce,” according to a letter from nine industry groups, including the United Fresh Produce Association.

Where this goes: The $4.6 billion fresh produce packing industry is investigating options to free up the shipping stalemate. Temporary changes to pallet requirements and plastic pallets are all on the table to get food to the table. Even so, producers could be plagued by pallet problems for the balance of 2021.

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As the largest exporter of coffee, sugar, and orange juice, Brazil’s weather woes should worry the world.

A rainy season just ended with hardly any rain, and many farmers have already used up water reserves they hold on to for the upcoming dry season.

To put it in perspective: “My irrigation reservoir is drying up now -- that usually happens in August,” said Mauricio Pinheiro, who lives in Pedregulho in the Alta Mogiana region, in Sao Paulo. “I’m really concerned about running out of water in the coming months.”

Even irrigated areas aren’t making it rain. The outcome? Orange output is already down 31% from last season, and the USDA is predicting Brazil will have the smallest coffee crop in the past four years.

And it’s not just the run-of-the-mill coffee. It’s Arabica coffee beans, the high-end variety used by stores like Starbucks.

Where this goes: All told, Brazilian farmers are facing a perfect dry storm, and its implications go further than the country’s second corn crop.