Historic Flooding and an Update on Trade
Update for March 20th, 2019
We’ve heard it all before but reports from the Wall Street Journal Tuesday afternoon say that the U.S. and China talks are now in the final stages of trade negotiations. The update noted that U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin are scheduled to fly to Beijing this coming Monday, March 25th. China’s Vice Premier Liu He is then scheduled to travel to Washington D.C. the following week.
There has been a lot of speculation and false rumors throughout the entire negotiations process and those reports continue to circulate. Farmers across the country are banking that a fair and solid agreement will be a reality very soon. The final meeting between President Trump and President Xi Jinping to sign the agreement was previously expected to occur by the end of March but now some sources including the South China Morning Post is stating that this meeting may actually be pushed back until June. In the article the newspaper stated that the holdup is due to the insistence by Washington that a “mechanism” be put in place to ensure China upholds its promises in the trade deal.
As the massive snowpack across the U.S. begins to melt flooding has become a major concern across a vast portion of the country. Some historians are beginning to compare this spring to that of 1993 however the flooding is occurring much earlier in the season than it did in ’93. Melting snow, excessive rainfall and ice jams have roads and interstates closed across the Midwest and has caused the evacuation of several communities. In addition to the damage being caused to structures, flooding has also halted early spring fieldwork and planting in several areas where we normally see progress being made by this time of the year. As of Monday, March 19th, 280 rivers were already running above flood stage and this is expected to continue to expand down the Missouri and Mississippi rivers for the next several weeks.
The USDA Planting Intentions Report will be released on March 29th. Private firms are starting to announce their estimates including FC Stone which is forecasting an acreage estimate of 90.4 million acres which is only a 1.3 million increase from last year. The big corn acres that the USDA expected early this winter are not surfacing. If this remains the cast, the corn yield average will need to increase above trend line by 5 to 6 bushels to keep the corn balance sheet from shrinking even when you figure in decreasing demand. As you would expect, soybean acres are now expected to expand this season as a result of the extensive flooding along both the Mississippi and Missouri Rivers and their tributaries which has producers preparing for what may yet again a later spring planting season. Last week F.C. Stone estimated 87.7 million acres of soybeans will be planted this year which is the highest estimate of any private firm so far. In addition to the delay in spring planting progress, the flooding is causing a lot of issues even beyond the slowdown of barge traffic on the river, now some railroads are having a difficult time as well. Two major railroad companies, the Union Pacific and the BNSF, have both reported that stretches of their tracks have been washed out which is forcing them to shut down service in those areas without a definitive idea of when service will resume. Ethanol margins saw a boost as the extent of the rail damage was determined. At this point most of the ethanol facilities in the eastern half of Nebraska are unable to rail any product out and it could be quite some time before the damage is repaired.
The map shown indicates where snowpack still remains as of yesterday, March 19th, in the Upper Midwest and Northern Plains regions. It’s estimated that anywhere from 5 to 10 inches of water remains trapped in the snow that has not melted yet. Much of this water will soon be flowing into the major river basins and will likely further impact areas already dealing with historic flooding and devastation.
At the end of January the Palmer Drought Severity Index for the top 21 corn and soybean producing states indicated that these 21 states were the wettest since 1960 for that same time period. Since then additional heavy precipitation has increased the readings in all but 4 of the states. 7 states have their highest ratings since 1960 and 10 are considered severely wet. On a side note, for the first time since 2011 the state of California is officially drought free. Following an extremely wet winter there are only two very small areas within the state that are still considered “abnormally dry” which is very insignificant when you take into account the amount of time California has spent in the historically long drought.
Most weather model guidance is showing an increasing likelihood of an El Niño weather pattern developing this spring that is then expected to strengthen through the middle of the summer. WeatherTrends 360 says that if the system develops as expected it will likely suppress hurricane activity due to wind shear and should also bring a drier pattern to the U.S. for the last half of 2019, a reversal of the wet pattern seen the past couple of years.
As we look at the spring outlook shown below we see that temps are forecast be cooler than normal in key corn production states of Iowa, Nebraska, Minnesota, Missouri, Arkansas, parts of Illinois and the Dakota’s. This will certainly work to delay planting and create additional complications.