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Future of U.S. Trade & Biden the Backs RFS

Update for February 25th, 2021

Estimates now indicate that 20% to 30% of Brazil’s Safrinha crop will likely be planted beyond the optimal planting window for highest yield potentials. The markets will continue to monitor this situation over the coming months to try to determine a production outlook for what is traditionally Brazil’s largest corn crop with nearly 80% of total corn production grown during this season. Reuters conducted a poll of 11 market analysts that confirms earlier thoughts that Brazilian farmers are planning to expand plantings this season. High cereal prices have persuaded producers to add around 2.47 million corn acres this season bringing the total to 48 million. While 25% of this area is not expected to be planted during the optimal climate window the total output is still expected to exceed last season’s output by 5.4% bringing total production to a projected 108.2 million tonnes.

Here at home the acreage battle continues, will soybean prices be attractive enough to sway producers away from planned corn acres? Some traders believe that may be the case, other don’t think producers will be easily influenced, at least not to any significant degree. Especially following the announcement this week from the Biden Administration saying that they agree with the appeals court regarding ethanol and the limiting of RFS waivers. This decision could add 1.2 billion gallons to biodiesel and raise ethanol demand back up to 15 billion gallons. While export demand has been exceptionally strong there remains a large amount of outstanding and unshipped loads of U.S. corn to China. This has some wondering if the Chinese will actually take delivery of these bushels or if we will begin to see cancelations over the coming weeks.

Ongoing harvest delays across Brazil have helped to strengthen U.S. soybean prices this week, even though traders are expecting Brazil to report strong yields with record setting production this season. The slowdown in Brazil’s harvest progress has pushed back the export shipping schedule forcing soy crushers in China to plan for a temporary suspension of operations. This situation was initially expected to last for only a few days but the expected shut-downs are now projected to last up to a couple of weeks. A manager with a major crusher in southern China reported, “Bean shipments from Brazil to southern China will be very limited in March. Supplies will be tight”. It’s possible that this could prompt some new demand for U.S. soybean bushels but right now beans out of the U.S. are hard to find and are drastically overpriced compared to Brazilian bushels.

The large price swing that developed between last summer and now has persuaded some Brazilian soybean farmers to default on new crop contracts signed several months ago when prices were considerably lower. Last July strong demand and a weak Brazilian Real sparked attractive prices, this encouraged farmers to sell a massive 40% of the new 2020-21 season soybean crop-a considerably higher volume than the 5 year average of 12%. Since those early sales were made soybean prices have more than doubled. This has trading houses concerned that additional farmers may follow along and default on those early-much cheaper contracts, which could ultimately lead to considerable financial losses to the firms if they are forced to buy in-season soybeans to cover their own export sales. This has led to some of the firms asking permission from a judge to seize from the farmers the soybeans they previously purchased. According to Andre Nassar, head of the group representing the major trading houses, right now there are “less than 20” such farmer lawsuits filed but its early in the season with only 15% of the soybean harvest completed and they fear the numbers will only continue to increase as the harvest progresses.

The final spring insurance guarantees for corn and soybeans are still being determined but will likely be the best we’ve seen in years. There are only a few days left in the discovery period, corn is expected to be the best since 2014 and soybean’s the best since 2013.

Tuesday the U.S. Senate confirmed Tom Vilsack for Ag Secretary. Vilsack, former Iowa governor, will serve in this role for the second time following a 92-7 vote. During the hearing Vilsack told senators that he plans to work to secure trade policy and increase capacity at food banks and pantries as well as partner with Congress to work towards zero emission agriculture. Zippy Duvall, President of the American Farm Bureau Federation says that he has spoken to Vilsack about the opportunities and challenges facing America’s farmers and ranchers, “We have a lot of work to do as we overcome obstacles created by the COVID-19 pandemic. We must commit to resuming CARES Act programs and continue to build on advances made in trade.” (Sources: The Hill, Feedstuffs)

Today the senate will meet with U.S. Trade Representative nominee, Katherine Tai. Chuck Grassley (R-IA) says that it is extremely important that the new nominee understands the importance of the Phase 1 trade deal and is committed to enforcing the agreement. In addition he plans to ask for an update on how Biden’s administration plans to work with Japan, South Korea, Canada and the European Union to compel China to be a more fair and honest trading partner.

The position as USTR is vital and according to Greg Doud, former U.S. Ag Trade Negotiator, the global ag market is likely to remain volatile especially with China. At a Global Trade Outlook event hosted by Farm Foundation Doud expressed concern regarding the uncertain future of U.S. trade with China. “Looking ahead 2 to 3 years it’s impossible to say with a degree of certainty whether China might be importing 30 million tonnes of corn or just 5 million tonnes.” Our recent boom in Chinese exports is not guaranteed to remain. “China lost about 40% of their hogs due to African swine fever and as they come back online it’s not going to be a smooth line.” They are transitioning from “backyard operations” to more western-style confinement ones.” The change from feeding hogs with food scraps to grain and oilseeds is important to demand especially for corn and soybeans. Doud said the move is “maybe one of the biggest things that ever happened in the history of world agriculture.” Overall demand for ag products has grown dramatically in the past couple of years. Beef, pork and poultry imports to the nation grew from $136 billion in 2018 to around $170 billion last year. He also stressed a need for expansion/improvement to U.S. export infrastructure. We saw a huge increase in exports due to a weaker Dollar, “if you talk to the grain companies, our infrastructure for all intents and purposes, we may squeeze a boat in here or there, but we have really maxed out our infrastructure here in the last few months in what we can sell to China or to anybody for that matter.” It’s important that the U.S. respond to this short-fall because our competitors like Brazil and others are, “not going to back down in terms of production”. Doud also expressed the importance of keeping our access to China active and open. “Before we started Phase 1 negotiations, we had about 1,500 facilities in the U.S. eligible to export agricultural products to China. So that would have been beef processing facilities, dairy facilities, pet food facilities….1,500 of those. Today, we now have well over 4,000 facilities in the U.S. eligible to export their products to China." The U.S. has gained “access to China now that we never had before, and this is a major change. The improvements in market access that we now have in place are going to treat us well here going forward.”

NOAA’s five-day precipitation map (through March 2nd) for the U.S.

The latest U.S. Drought Monitor map.

Next week I plan to bring more spring weather information. Outlooks change daily and vary greatly by agency as you can see from the two shown below. The first set of maps are NOAA’s from yesterday, the second set are also from NOAA but are today’s outlooks…

On Wednesday, February 24th NOAA reported the March 1-5 forecast shown in the first set of maps below.

24 hours later NOAA shows this as the 6 to 10 day outlook for March 2 – 6.

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