New Trade Deals and Weather Outlook

Update for October 3rd, 2018

The USDA Grain Stocks report was announced last week. Old crop corn stocks as of September 1st were reported at 2.14 billion bushels which is down -7% from a year ago but came in higher than the trade had expected. The agency found that 620 million bushels of corn are being stored on the farm which is a -21% decrease from a year ago while off-farm 1.52 billion bushels are being stored which is a rise of +1% from last year.

Old crop soybeans stored in all positions as of September 1st was calculated at 438 million bushels which is a large +45% increase from 2017. Soybeans stored on the farm were found to be +15% higher than a year ago at 101 million bushels. Soybean inventory located in off-farm locations rose +58% from a year ago to 337 million bushels.

USDA Quarterly Grain Stocks (billion bushels)

USDA Average Range of USDA

Sep 2018 Estimate Estimates Sep 2017

Corn 2.140 2.010 1.953-2.099 2.293

Soybeans 0.438 0.398 0.378-0.430 0.302

Wheat 2.379 2.344 2.155-2.440 2.266

USDA Wheat Production (billion bushels)

USDA Average Range of USDA

Sep 2018 Estimate Estimates Sep WASDE

All Wheat 1.884 1.873 1.848-1.907 1.877

All Winter 1.184 1.188 1.170-1.200 1.189

Hard Red 0.662 0.661 0.655-0.666 0.661

Soft Red 0.286 0.291 0.285-0.294 0.292

White Winter 0.236 0.237 0.230-0.247 0.236

Other Spring 0.624 0.610 0.591-0.635 0.614

Durum 0.077 0.073 0.070-0.080 0.073

Source: USDA

INTL FCStone has now estimated that the average yield for the 2018 corn crop will reach 182.7 bushels per acre, slightly higher than the current USDA estimate of 181.3 bushels per acre. In addition they increased total production to 14.940 billion bushels up from their September estimate of 14.532 billion. The average soybean yield was set at 54 bushels per acre putting 2018 total U.S. soybean at 4.796 billion bushels which is slightly higher than the current estimate from the USDA. Shown below is a list, by state, from INTL FCStone showing their estimated yields for 2018 Corn and Soybean crop:

CORN YIELDS

· ILLINOIS 213.0 bushels per acre

· IOWA 204.0 bushels per acre

· NEBRASKA 199.0 bushels per acre

· INDIANA 197.0 bushels per acre

· OHIO 192.0 bushels per acre

SOYBEAN YIELDS

· ILLINOIS 67.0 bushels per acre

· INDIANA 65.0 bushels per acre

· NEBRASKA 64.0 bushels per acre

· OHIO 62.0 bushels per acre

· IOWA 59.0 bushels per acre

Excessive rainfall has forced harvest to come to a standstill in many areas across the Heartland. This has some traders thinking that perhaps a bit of a weather premium may be warranted, especially considering that U.S. and global corn supplies are at multi-year lows. Additionally, demand remains extremely strong and some analysts believe that the USDA will need to bump up its feed usage estimate higher. Unfortunately it’s difficult to know whether a price rally could sustain itself for long even with these bullish headlines given the technical resistance level which is currently in the $3.80 to $3.90 range in the DEC 18 contract.

Trade negotiations with the Chinese government seem to be getting more complicated as time goes on. A military meeting between our countries had been planned for next week which has now apparently been canceled by Chinese officials. Apparently they are upset about a recent sale of U.S. military hardware to the country of Taiwan, these kind of sales to their neighbors have never gone over well with the Chinese government. In addition, the U.S. imposed sanctions on the Chinese military for their recent purchase of weapons systems from Russia and just last week the U.S. flew B-52 bombers over the South China Sea. These political maneuvers by each country only work to complicate and prolong a desperately needed trade deal with China.

Fortunately though other trade negotiations over this past week have been very successful. Officials from the country of Taiwan and the Iowa Soybean Association met at the Iowa Capitol where Taiwanese officials signed an agreement to purchase $1.56 billion worth of U.S. soybeans in 2018 and 2019, an increase of 37%. Radio Iowa reported the agreement quoting Iowa Soybean Association president Tim Bardole, “Today’s announcement by our Taiwanese trading partners to increase purchases of U.S. soybeans is welcome news. As an Iowa soybean farmer, I can say firsthand that we need some good news.”

U.S. and Canadian trade negotiators worked around the clock this past weekend to reach a trilateral deal to replace the North American Free Trade Agreement by the September 30th deadline. It was unclear whether a trilateral agreement would be reached after a deal between the U.S. and Mexico had been made on August 27th. President Trump announced at that time that Canada could join in the agreement if they would be willing to make some concessions. After more than a year of aggressive negotiations and tariff increases a deal was agreed to that has received much praise from all areas of business in each of the 3 countries.

The Market Facilitation Program has opened for signup and will remain open until January 15th, 2019. The payments will be issued based on 50% of the producer’s total production which is then multiplied by the particular MFP rate for that specific crop. The USDA will determine at a later date if there will be funds available for a second payment period. It’s important to note that MFP payments are limited to a combined $125,000 for corn, cotton, sorghum, soybeans, and wheat which will be capped by person or legal entity. This same limit applies to dairy and hog producers. In addition the applicants must also have an average adjusted gross income of less than $900,000 for the tax years of 2014, 2015 and 2016 and applicants must also comply with the provisions of the Highly Erodible Land and Wetland Conservation regulations. The graph below indicates the commodity along with the payment rate and the initial expected payout for each.

Commodity Est. Initial Payment** Initial Payment Rate (in $1,000s)

Cotton $0.06/lb. $276,900 Corn $0.01/bu. $96,000 Dairy (milk) $0.12/cwt. $127,400 Pork (hogs) $8.00/head $290,300 Soybeans $1.65/bu. $3,629,700 Sorghum $0.86/bu. $156,800 Wheat $0.14/bu. $119,200 Total $4,696,300

**Initial payment rate on 50% of production

The 2-week outlook from WeatherTrends 360 for October 1-14th shows cold air across the Western and Northern U.S. this week which will make it’s way easterward later next week. As you can also see the persistant rainfall that is slowing harvest in many parts of the Corn Belt is expected to continue through the first half of the month. The GFS and Euro models are also in agreement with this outlook calling for additional and abundant moisture.

The Weather Company has released their fall temperature outlook, shown below. As you can see the cooler temps are mostly present across the North with warm temps for a large portion of the remainder of the U.S. However, this scenario is expected to flip as we move into November as the North is forecast to really start to warm up with above normal temperatures. While the colder temps are expected to move to the South and Gulf regions due to the forecasted El Niño pattern that is expected to develop and bring more rain to the southern portion of the country this fall and winter.