Chinese Trade Update and Weather Outlooks
Update for September 25th, 2019
Chinese trade negotiations were held this past week in Washington D.C. China had hoped to reach a “partial deal” during this visit to avoid scheduled tariff increases next month but were unsuccessful in accomplishing this goal. Fears surfaced that the talks had broken down Friday when the Chinese trade team announced that they would be returning home early, cancelling previously scheduled farm visits to Montana and Nebraska. The decision to leave sooner than planned came quickly following President Trump’s comments that he is looking for a “complete deal” with the Chinese, not a partial one. Trump explained that China’s offer to increase purchases of U.S. agricultural products alone is not enough, the issue of intellectual property theft must also be resolved for such a deal to be reached. Over the weekend both the U.S. and China released statements that have reassured the market that the next round of trade talks will go on as planned in October stating that “constructive” discussions had indeed taken place during this visit. Now yesterday we were told that the cancellation of the farm visits had nothing directly to do with the progress of negotiations but instead, timing. The logistics of the visits were more challenging than earlier thought and impossible to pull off on such short notice. The threat of ASF exposure to farms visited by the delegation weighed on the decision as well which led the president’s administration to decide it would be best to hold off on any farm visits for the time being. The next round of face to face discussions are scheduled to begin in Washington during the week of October 7th. This meeting will be held with top trade negotiators from both countries including Chinese vice Premier Liu He and U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin.
Following the deputy level trade talks last week several Chinese importers were given permission to purchase several more cargoes of U.S. soybeans tariff free. Reuters reports that on Monday, 10 cargoes of U.S. soybeans were purchased for shipment out of the Pacific Northwest export terminals from October to December. This is similar in volume to the buying earlier this month.
Taiwan is our 8th largest importer of ag products and every two years a delegation is sent to the U.S. to purchase agriculture products. This week the delegation is in the U.S. and has announced plans to sign a $3.6 billion deal for U.S. (Illinois) soybeans, corn, wheat and beef as well as other ag products. In addition, President Trump and Japanese Prime Minister Shinzo Abe are scheduled to meet Wednesday in New York where they are expected to sign a mini trade agreement which includes agriculture products.
The USDA increased the GD/EX corn rating this week by 2 points to 57%. Crop development: 96% has reached the dough state and 79% of the crop has dented. Nationwide, 29% of the corn crop is considered fully mature vs the 5 year average of 57%. Corn harvest showed some progress over the past week increasing from 4% a week ago to 7% this week.
USDA’s GD/EX soybean rating remained unchanged at 54% this week. 34% of the nation’s soybean crop has begun to drop leaves vs the 5 year average of 59%.
We have been anticipating an announcement from President Trump regarding a “giant package” planned to boost biofuels. Earlier we heard that the plan was to include the reallocation of the nearly 4 billion gallons of ethanol that had been waived by the EPA over the past 3 years. Recent meetings with oil industry leaders and a lack of any concrete decisions is troubling. President Trump has now decided to turn the issue over to his Economic Adviser Larry Kudlow to evaluate the situation and decide the best course of action. This certainly could mean changes are in store from the initial package.
Corey Loveland, NOAA hydrologist warns us that one of the building blocks of spring flooding is already in place for the 2020 crop year. “We could easily have a high water event again next year.” The lead factor, soil moisture is already in place for next spring. Loveland stated that he cannot remember a rain pattern like what we saw across the Northern Plains and northern Midwest this spring. “What’s interesting is the amount of rain. Every time you think it’s drying out, you get…rainstorm after rainstorm.” “Everything is saturated as we start to move into the cold season.” The 5 main components for spring flooding are:
High moisture after the fall season.
Frozen ground which causes winter and early spring precipitation to run off instead of entering the soil.
High snowpack which supplies water for potential run-off.
A rapid rise in spring temps which causes snow to melt quickly.
Spring rainfall itself.
The last 4 factors will not need to be significant in 2020 for flooding to occur due to the saturated soil as we enter the winter season. As you compare the two Soil Moisture Ranking Percentile maps from August, 2018 to August, 2019 you can clearly see we have a considerable head start for spring flooding to occur in 2020. Winter temps, snowpack, and spring weather are unknown at this point of the year but early outlooks are looking wet.
The end of the 2019 growing season seems to ending as it began across the Midwest. The trade is anxious to see more harvest results but significant rainfall, up to 3 inches in some areas, is expected this weekend across Illinois, Indiana and Missouri, stalling harvest progress for those producers. Temperatures (shown in the second map below) are expected to remain slightly above average through this weekend for much of the U.S. Corn Belt.
Looking into the first few days of October forecasts from NOAA show a continuation of above normal rainfall and temperatures across the entire Corn Belt.
NOAA has released their 3 month weather outlook for October through December. Currently this timeframe which takes us into the first few days of the winter season looks to be warmer than average for the entire U.S.