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Deforestation Consequences and Market Outlooks

Update for December 24th, 2020

“There is no ideal Christmas; only the one Christmas you decide to make as a reflection of your values, desires, affections, traditions. Christmas Eve should wrap itself about you like a shawl. But it should warm more than your body. It should warm your heart. This is the night to make the best of what you have to work with...” – Bill McKibben

A $900 billion emergency aid deal was reached by Congress earlier this week and has been awaiting a signature from President Trump but last night he announced that he would not agree to the new aid package as it is written now. In a video- taped message the president explained that the proposed coronavirus aid package does not do enough for American’s and he wants the payments to individuals raised from $600 to $2,000. He also told Congress they need to get rid of the many “wasteful” items included in the package before he will sign it. The coronavirus aid package was not sent as a stand-alone bill for the president to consider. Congress had also attached, to this much needed aid package, a spending bill that includes massive amounts of U.S. taxpayer money to be sent to foreign countries which President Trump also criticized.

The original aid package includes additional relief for crop farmers as well as livestock producers. If this portion of the original bill is unchanged in the rewritten version crop farmers will receive $20 per acre and $3 billion will be available to livestock producers.

The coronavirus pandemic has raged across the globe since last March causing panic in all segments of our lives and culture. Now there is light at the end of the long, dark tunnel. The first COVID-19 19 vaccinations began in the U.S. on December 14th and according to the CDC, has been administered to more than 2.2 million individuals in 6 countries (over 614,000 in the U.S.) in less than 10 days. Bloomberg reports that this is the largest vaccination campaign in history and is one of the most difficult logistical challenges ever undertaken. Phase 1 of vaccinations has been made available to our healthcare professionals and long-term care facility residents and employees, but we have not heard much about who will qualify for Phase 2. The following article from AgriPulse outlines the anticipated order as more vaccine becomes is available.

Food and Ag Workers Recommended for Phase 1B Vaccine Rollout: Frontline essential workers, including those in the food and agriculture industry, should be in the second group to receive COVID-19 vaccines, advisers to the Centers for Disease Control and Prevention recommended. The recommendations, which now go to CDC Director Robert Redfield for approval, would provide a framework for states to determine who should receive the vaccine after members of the Phase 1a group (healthcare workers and residents and staff of long-term care facilities) are vaccinated. The Advisory Committee on Immunization Practices voted 13-1 in favor of the plan put forth by an ACIP work group, which puts the nation’s approximately 30 million frontline essential workers and 19 million persons aged 75 and over in Phase 1B. “Grocery store workers” and those in “food and agriculture” and “manufacturing” also are specifically listed in the second phase (See this document from the advisory committee for more information.) The next phase, Phase 1C, includes “other essential workers.” Those include food service workers and those in energy, and transportation and logistics, senior citizens younger than 75 and those aged 16-64 years old with underlying medical conditions.

Climate Change- a term we hear regularly is greatly influenced by the deforestation of the world’s rainforests. The latest figure shows that over 200,000 acres of rainforest are burned every day with 78 million acres lost every year! The issue has now gained the attention of several of the world’s largest food companies and grocers including Nestle, Unilever, McDonald’s, Walmart, and Tesco along with others. These companies have asked their commodity suppliers-Archer Daniels-Midland, Bunge, Cargill, and Louis Dreyfus to halt their trading of soybeans with those associated with the deforestation that is occurring in the Cerrado region of Brazil beginning as soon as next year. This region produces nearly 60% of Brazil’s soybean crop but even more importantly it plays a vital role in keeping our planet healthy through the absorption of CO2 which helps to stabilize the Earth’s climate. Anna Turrell, Tesco’s head of environment stated, “We source much of our soy from the Cerrado region, so it is vital we play a leading role in protecting this biodiverse region for future generations. We’re calling on traders to step up their own commitments and implement robust monitoring, verification and reporting systems within the regions and set a 2020 deforestation and conversion-free cut-off date for soy from the Cerrado.”

Most of the commodity suppliers have not yet agreed to follow the request, arguing that while much of the soybean supply purchased comes from the Cerrado region most of the crop is grown on land cleared many years ago. Cargill released a statement explaining that more than 95% of the 2019 crop purchased was free of deforestation and such conversion. “Cargill will not supply soy from farmers who clear land illegally or in protected areas, and we have the same expectation of our suppliers.”

Damaging environmental practices in Brazil have angered and connected consumers around the globe with a common goal. This has prompted governments and businesses worldwide to follow the lead of their consumers who will ultimately decide the direction this movement takes. (Sources: Bloomberg, Reuters, Independent, MongaBay)

Front month corn futures have rallied past their previous high and are now at their highest since July 2019, +0.40 higher than early November and $1.00 higher than last summer. Now that prices have passed $4.40, could we see prices rally to $4.60+ even with strong resistance on the charts from $4.40 to $4.50? There are headlines to support either scenario you chose to believe and reasons for price movement in either direction. For example, we have learned that China has resumed their domestic auctions, with sales of 2 MMT so far. This leads bulls to believe that internal demand in the country is very high and that they must sell off some of the domestic surplus just to get by. Bears look at the situation differently, they see the sales of the national supply as a sign that they are comfortable with recent imports and are confident enough in their supply levels to begin selling to domestic feed lots and other commercial end-users. What we do know though is that there is a strong global demand for U.S. corn.

Soybean prices increased $0.58 last week, raising the price to levels we have not seen in 6 years. How much higher can they go? Some traders feel that there is resistance on the charts in the $12.50 to $12.60 range. Keep in mind that the next most significant high beyond this level occurred during April-May 2014 when the market soared to the $15.30-$15.40 range. There is a very limited supply of soybeans in the world right now so any issues or complications in the supply chain make the trade extremely nervous and will likely increase the risk-premium offered. This has added even more importance to weather conditions in South America as dry conditions delayed the start of the planting season and has stressed the maturing crop. Rainfall is expected across much of Brazil over the coming days. Key central and northern growing regions are forecast to receive 2 to 3 inches of rain over the next week while the southern portion of the country remains dry. Looking at the 7-to-14-day period normal to above normal rainfall is expected over almost all of Brazil and Argentina. The SAM crop is still at risk in the coming weeks as harvest approaches. Aprosoja, a group representing farmers in Brazil have lowered their estimate to 127 MMT of from the previous estimate of 129 MMT. This is still 1 MMT above last year’s record harvest. If there are sizable production losses in SAM, we will likely see a push for more U.S. corn acres in 2021. The corn to soybean price ratio is already stretched so it may require considerably higher corn prices to convince producers to make the adjustment.

Remember to contact your Farm Service Agency office regarding farm program options for your 2021 crop. You will be deciding whether to use the Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) programs for your base acres. Even if you do not want to any changes from this year you must still enroll again to be eligible for payments. The deadline is March 15th.

Extended temperature outlooks for January-March from the Weather Channel are included below in individual maps. The overall precipitation for the 3-month period is shown in the last map.

The outlook for next week is shown below. Notice the large portion of the U.S. that is expected to receive normal to above-normal precipitation during this 6–10-day period.

Everyone at Ag Performance would like to wish you and your family a

Very Merry Christmas!!!

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