Meeting in Beijing and More Issues Affecting Ag Due To Government Shutdown
Update for January 8th, 2019
As the partial government shutdown now enters its 18th day it is now the 3rd longest shutdown in U.S. history. If an agreement is not reached this week and drags on into the weekend it will break the record 21 day shutdown set in 1995 under former President Bill Clinton. As expected, several of the biggest crop production reports of the year are now delayed, the USDA announced on Friday that the Crop Production report and the WASDE as well as the winter wheat seeding update would not be released this week as scheduled. Chief Economist Robert Johansson says that there is not enough time to meet the originally scheduled release date but as soon as funding is restored a timetable for these reports will be announced.
Reuters is reporting that China purchased more soybeans on Monday. According to the report, two traders confirmed that Chinese state owned firms bought additional U.S. soybeans. One of the individuals reported the Chinese firms purchased 3 cargo loads of soybeans or about 180,000 tons while the other trader said the total was closer to 15 cargoes or 900,000 tons. The soybeans are expected to ship from terminals in the Pacific Northwest. With the partial government shutdown in place the USDA is not releasing its daily export sales reports which makes it harder now to confirm actual sales to China. U.S. export inspections for soybeans show 2.5 were approved for China but it is not known if the shipment will actually go there.

U.S. and Chinese leaders are gathering in Beijing for their first face-to-face meeting in over a month this week. Bloomberg reports that the Trump administration has expressed optimism that a “reasonable” trade deal with China can be reached as President Xi Jinping has sent one of his top aides, Vice Premier Liu He, to the negotiation in Beijing. Leland Miller, chief executive officer of China Beige Book, a data-analytics firm that surveys companies across the Chinese economy stated that Liu He’s attendance at the negotiations is a “symbol of Xi’s personal buy-in” in a real effort to reach a deal. “Beijing wants to show this is supported at the very highest level.” Commerce Secretary Wilbur Ross told CNBC Monday, “There’s a very good chance that we’ll get a reasonable settlement that China can live with, than we can live with, and that addresses all the key issues,” Ross explained that this deal could potentially involve more Chinese purchases of American soybeans and liquefied natural gas, while agreeing to “structural reforms” on issues like intellectual property rights and market access. Talks in Beijing are scheduled through today with Liu He and U.S. Trade Representative Lighthizer expected to meet for further negotiations later this month.
Crop Conditions in South America continue to be closely monitored. Last week INTL FCStone Brazil reduced their 2018-19 soybean production estimate by nearly 4 million tons down to 116.3 million tons, this is now lower than the yield last season of 119.3 million tons. South American crop consultant Dr. Michael Cordonnier lowered his estimate for the Brazilian 2018-19 soybean crop again this week by 3.0 million tons. “Recent rains have been in the form of scattered afternoon thunderstorms instead of what is often a week or two of heavy overcast skies with intermittent rains at any time of the day or night. Even with the scattered showers, the rainfall amounts have been below normal and the distributions has been very uneven. The driest area remains western Parana, southern Mato Grosso do Sul and Sao Paulo. Many farmers in this location have not received a good rain in 30-40 days or more and the temperatures have been above normal.” Nearly every major soybean producing state in Brazil is estimating a reduction in yields from those of 2017-18. Those reductions vary from a 5% loss all the way up to a 30% loss of yield depending on location. Dr. Cordonnier estimated, “approximately 60% or more of Brazil’s soybeans are in critical pod filling phase. In any given area, additional rainfall going forward would probably strop the yield declines, but they would not add-back to yields already lost, especially for early maturing soybeans.”

The corn market is also hoping to receive some promising news out of the meetings in Beijing. We’ve been hearing that the Chinese are interested in U.S. corn, ethanol and DDG’s but so far nothing has officially been purchased. We hear a lot about the toll adverse weather conditions are creating for Brazil and Argentina’s soybean crops but it has also brewed up some uncertainty about this season’s corn production as well. Currently the USDA has estimated Brazil production at 94.5 MMT’s vs 82.0 MMT’s a year ago and has Argentina’s production forecasted at 42.5 MMT’s vs 32 MMT’s last year. If the current USDA estimates hold true then we will see an additional +20 MMT’s of South American corn in the marketplace than we saw a year ago. If the dry pattern continues we could see S.A. production numbers tapered back a bit further which would give our markets some bullish data it’s looking for to potentially move prices higher.

The House Ag Committee, now controlled by Democrats, is planning to spend much of 2019 working to implement the new farm bill. There will likely be Hearings regarding: rural broadband, trade, renewable fuel standards (RFS) and the state of the farm economy. As we enter the 116th Congress we still have 3 high-level USDA nominees that are still waiting for confirmation. Even the Senate Ag Committee is unsure what will happen next especially while the U.S. government continues to be partially shut-down.
Bone chilling cold temperatures normally seen during early January have been absent and the extended outlook calls for more above-average temps through January 20th. WeatherTrends 360 reminds us though that “we are only 18% into Winter…that means we have 82% to go so hang in there cold/snow lovers”. They are also noticing signs that the weak El Niño pattern is starting to act like it typically should, bringing a heavy rain pattern along the Deep South, especially Texas as well as to the West Coast.
