Flooding and Ice Halt Mississippi Barge Traffic, March Weather Outlook and China
Update for March 6th, 2019
Bloomberg announced last Thursday, February 28th, that U.S. and Chinese negotiators are in the final stages of putting together a 150 page executive order that specifies details of the agreement currently being finalized. Not all details of the executive order have been worked out or disclosed yet publicly but the pact will include 6 MOU (Memo of Understanding) points that were agreed to by negotiators which does include IP protection. Arrangements are underway for Chinese President Xi to meet with President Trump in Florida to sign the agreement later this month. White House Economic Advisor Kudlow indicated that this agreement will be a historic pact that requires China to reduce subsidies to state-owned companies and disclose central bank interventions within its currency market. The agreement also includes a promise by China to purchase 1.2 trillion dollars of U.S. goods over the next 6 years in an effort to reduce China’s current trade debt with the U.S. Exactly what commodities are purchased and the amounts for each are reportedly up to China.
In other news regarding business with China:
President Trump has officially asked China to drop all current tariffs on U.S. agriculture products. We are still waiting on an answer which will hopefully come yet this week.
Reuters reports that China recently blocked a canola shipment from Canada. The two countries have several ongoing issues with each other and tensions have been rising, this could ultimately be an opportunity for additional U.S. business.
China’s economic growth is at its weakest level in almost 30 years. In an effort to help boost their economy a tax cut is being implemented along with an increase in infrastructure spending. Officials in China say that the slow growth is directly related to the trade war between the U.S. and China.
Both Reuters and The Associated Press report that the World Trade Organization has ruled in favor of the U.S. in regards to a long-running disagreement over Chinese subsidies for wheat and rice farms. According to the report, the WTO ruled that China had exceeded internationally agreed-upon standards for domestic support of rice and wheat farmers. This action allowed Chinese farmers to artificially reduce prices of wheat and rice around the globe. This WTO decision is regarded as a major victory for the Trump Administration by U.S. officials. This decision by the WTO can be appealed by the Chinese government.
The USDA March WASDE report will be released this Friday, March 8th. Traders do not expect many changes on this latest update and the worksheet below shows the estimates given by traders to Bloomberg.
Barge movement out of the Midwest has been stalled by flooding and ice buildup on key rivers. This has damaged some facilities and has halted the supply of grain and soy to export terminals at the Gulf of Mexico. One particular lock along the Ohio River became completely impassable a week ago stopping all vessel movement to and from the Mississippi River for the time being and reports are indicating that this situation could last for a couple more weeks. With the supply of barges trapped above the closed locks, rates are beginning to rise. Reports are that freight rates as of February 26th, along the Illinois River have increased by 14% from the week previous, 54% compared to a year ago and are 90% higher than the 3 year average for the period. In addition this halting of grain movement has pushed cash premiums for crops delivered by barge to the countries busiest grain port in New Orleans to their highest point in months. This has complicated efforts to secure new export sales during what is typically the busiest part of the U.S. export season. Brazil is also dealing with grain transportation difficulties. A major highway that leads to Brazilian ports is muddy and flooded in some areas and more rain is in the forecast for at least another week. This is already causing logistical issues for exports out of the country.
Interesting note-an average river tow on the Upper Mississippi River consists of a total of 15 barges tied together 3 wide by 5 long. This same load would fill a train 3 miles long or a line of trucks more than 35 miles long. This puts into perspective the importance and impact of this form of grain transportation!
African Swine Flu has now been found in 7 areas of Vietnam. The Prime Minister of Vietnam is calling for “drastic measures” to fight the spread of this fast moving and highly contagious disease. According to data from the Ministry of Agriculture and Rural Development over 4.300 pigs have been culled so far. Last year the country was able to produce 72% of all the pork consumed in the country.
Weather is always a wildcard during any growing season and many areas here in the U.S. are already battling a wet start to 2019 fieldwork. Early planting in portions of the Delta and Mississippi Valley look as if progress will be significantly delayed due to excess moisture. Texas, which typically grows around 3% of the total U.S. corn crop, reported Sunday evening that only 5% of their 2019 corn acres are planted. This is less than half the pace of 2018 and is currently tied with 2016 for the slowest on record for this point of the season. Attention will soon turn to Iowa, Illinois, Minnesota, Missouri and the Dakotas as planting season arrives in these areas over the next several weeks. Cold and snowy conditions have blanketed much of this region and little improvement is expected any time soon. The long-range forecast, shown in the first two maps below, is indicating that the colder and wetter than normal conditions are predicted to stick around through late March.