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Latest Trade News and Plans For The Future Of Ethanol and E15

Update for August 29th, 2019

Was there a phone call made from Chinese negotiators to top U.S. trade representatives over the weekend or not? Let’s certainly hope so! FOX News reported Monday morning that China is now seeking a “calm” end to the ongoing trade war with the United States. President Trump stated that he is optimistic that an agreement can be reached, “China called last night our top trade people and said, let’s get back to the table, so we’ll be getting back to the table, and I think they really do want to make a deal, and I think that’s a very positive step.” Reuters also reported that on Monday the Chinese vice Premier and top negotiator Liu He told a state-controlled newspaper, “China is willing to resolve its trade dispute with the United States through calm negotiations and resolutely opposes the escalation of the conflict”. Now today Gao Feng a spokesman for China’s Ministry of Commerce said that China wants to resolve the prolonged trade dispute with the U.S., “We firmly reject an escalation of the trade war and are willing to negotiate and collaborate in order to solve this problem with calm attitude”. In fact Beijing has indicated it will not immediately retaliate against the latest U.S. tariff increase announced last week, “emphasizing the need to discuss ways to deescalate the trade war between the world’s two largest economies”. The two countries have continued to maintain “effective communications” since the meeting in Shanghai last month. The next round of face to face trade talks will likely occur sometime in September in Washington but details are still being discussed.

Japan and the U.S. have reached a tentative trade deal….they have “agreed in principle” on a deal to avoid a trade dispute. This agreement will allow American farmers and ranchers to compete on more equal footing with members of the Trans Pacific Partnership. U.S. Trade Representative Robert Lighthizer said that the new deal will eventually mean an additional $7 billion in Ag exports to Japan. Trump and Abe hope to finalize the deal in September, it’s unclear if Congress will need to sign off on the deal.

Another ethanol plant has announced its plans to shut down production. The Corn Plus ethanol plant located in Winnebago, Minnesota will cease operations sometime next week. This will be the 16th plant to close its door since the Trump Administration raised the number of SRE’s under the RFS. President Trump has called the EPA’s issuance of 31 waivers “unfortunate” so in response Reuters reports that the Trump administration is working on a “giant package” related to ethanol and E15 to help aid the situation. U.S. Ag Secretary Sonny Perdue told an audience at the Farm Progress Show that a plan was in the works to benefit farmers. When asked for details about the plan he said, “That is really something the president is working very hard on. I think he wants to deliver that news himself. If you’re asking when that can be announced, I think over the next couple of weeks…I think he’d like to come out here and face the community himself and deliver the news himself.” What is known is that Trump Administration Officials have decided to increase RFS quotas as part of a broad framework of action but biofuel advocates are seeking reallocation sooner and want higher quotas…they are asking for a 387 million gallon increase in 2020 advanced biofuel quotas arguing that this is necessary in order to offset the 31 refinery exemptions from 2018 requirements.

Corn prices have fallen to levels just above contract lows. Crop condition ratings rose slightly this week which is also keeping the market confident in the state and size of this year’s corn crop with no apparent concerns regarding its immaturity. Cooler than normal temps across much of the Midwest over the past several days is extending the days we need added to the end of our growing season to reach maturity, the latest long range outlooks show the below normal temps are expected to remain into the second week of September. Obviously this is not what the crop needs but the market is indicating that it is unlikely to build weather premium back into corn prices until there is a real frost/freeze threat.

Crop progress for soybeans this week showed that 6% or 4.6 million acres have not started to bloom yet and 21% or 16.1 million acres were not setting pods. Perhaps traders will begin to take more notice to the millions of acres of greatly immature soybeans once the calendar turns to September. We are all painfully aware that much of the trade war with China has centered on agriculture and more specifically soybeans. Several times since the trade dispute began China has promised to buy large amounts of U.S. agricultural commodities including soybeans as a show of good-faith. Oftentimes we have been left wondering if those promises were actually fulfilled.

Ken Smithmier, head of Ag Research at ClipperData has data that shows the U.S. is shipping soybeans to China, and he believes that the number of shipments may increase as we enter the last quarter of the year. Smithmier said, “August is going to be a big month” according to ClipperData, a company that tracks agricultural shipments around the world, “China has already unloaded just over 7 million tonnes this month”.

“The U.S. is shipping soybeans” he said. “We just shipped some last week. There were nine boats, four out of the Gulf and five out of the Pacific Northwest. What we aren’t seeing is any big purchases from the U.S. by China.” Smithmier noted that while China has been purchasing some soybeans from the U.S. the majority of its supply has been sourced through Brazil. Earlier this week he commented, “there are 25 to 30 vessels in the Yellow Sea or South China Sea area, which would imply maybe another 1.5 to 2 million tonnes are heading for China. When you add all that up, assuming there’s no delays with unloading due to weather, maintenance or things like that, I think it’s fair to say for August, could be looking like a 9 to 10 million-ton month which would be a big month for China.”

Unless the exportable surplus estimated by the USDA or the local Brazilian government is wrong, Brazil may be running low on supply until the new soybean crop is harvested. “If China is going to import a similar amount to what they did last year from September through January, essentially what it shows is there’s anywhere from a 12 to 14 million ton deficit, if China buys the same amount within that period.” The presence of African Swine Fever may reduce the level of demand typically seen but Smithmier thinks that China will need to come the U.S. at some point.

Farm Futures conducted a survey of U.S. producers regarding their planting intentions for 2020. Keep in mind that the data was collected between July 21st and August 2nd prior to the August 12th USDA Crop Report that triggered a major breakdown in prices, especially for corn. 2020 early planting intentions for U.S. producers: Corn 94.1 million acres, Soybeans 83.6 million acres, Wheat 45.1 million acres and Cotton 12.7 million acres.

The NOAA 6-10 day forecast that takes us through Sunday shows cooler than normal temps and above normal precipitation for the Midwest. The third map shown below from World Ag Weather indicates the cool temps aren’t going anywhere and will likely hang around into the second week of September.

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