Update for January 25th, 2019
Bloomberg News is reporting that officials familiar with trade negotiations privately told the news agency that during talks in Beijing earlier this month China offered a plan to work out the large trade imbalance with the U.S. The Chinese offered a 6 year plan to purchase $1 trillion dollars of U.S. commodities and other goods. This ramping up of U.S. imports would reduce their trade surplus which last year stood at $323 billion down to $0 by 2024. U.S. negotiators are demanding a shorter time table, they want to see the trade imbalance cleared up in the next two years. Economists that have studied the situation argue that the U.S. demand to eliminate the gap in two years is too aggressive due in large part to the high U.S. demand for Chinese products.
We are all well aware there were no decisions finalized during the negotiations in Beijing earlier this month but discussions are set to continue next week when Chinese vice Premier Liu is scheduled to travel to Washington. The Trump Administration refused to meet with two Chinese vice-ministers this week for preparatory trade talks. This offer was rejected because there is a lack of progress on a few key issues which include Chinese subsidies and industrial policies that discriminate against foreign investors and alleged theft of U.S. technology, business and military secrets as well as cyber theft. If a deal is not reached by the March 1st deadline or if sufficient progress towards an agreement has not been made, President Trump has said he will increase the punitive tariff rate imposed on nearly 50% of all Chinese exports to the U.S. from 10% to 25%.
The USDA has recalled 9.700 employees to work for the first two-week period of its operating plan. Offices will be open as usual Monday through Friday during this two-week timeframe, if after February 8th the government shutdown has not been resolved office hours will be reduced to Tuesday through Thursday. The Market Facilitation Program sign-up deadline was extended to February 14th which was pushed back from the original deadline of January 15th to compensate for the days producers were unable to sign up due to closed offices. It is now late enough that the February supply and demand report is probably not going to be released on schedule. There are speculations that the January report, with final 2018 yield numbers, may actually replace the delayed February USDA S&D report.
The annual acreage estimates are starting to be released from private firms. IEG Vantage (formally Informa Economics IEG) is projecting 91.504 million corn acres in 2019 which is a 2.364 million acre increase from a year ago but 440,000 lower than their previous projection in December according to Reuters. IEG Vantage is looking for a 2.941 million acre decrease in acres planted to soybeans from a year ago down to 86.204 million. Results from a Farm Futures email survey indicated producers plan to plant approximately 90.3 million acres to corn in 2019 an increase of 1.076 million from 2018. It also showed U.S. farmers plan to plant 4.5 million less acres to soybeans this season bringing their estimate to approximately 84.6 million acres. This shift, which is due to low soybean prices, is expected to occur mostly in fringe Corn Belt states where there has been a rapid expansion of soybean plantings over the past 10 years. State like Missouri, North Dakota and Kansas are projecting the largest shift away from soybean acres this year.
Early harvested soybeans in Brazil are beginning to reach the export terminals. It’s rumored that the majority of these bushels are destined for China following a purchase of 25-30 cargoes from Chinese buyers. These bushels out of Brazil come at a substantial discount to U.S. soybeans as prices fell in Brazil following news of positive discussions between U.S. and Chinese negotiators. After calculating all costs involved including tariffs, its estimated U.S. soybeans into China cost around $14.50 per bushel compared to Brazilian soybeans which are roughly $11.50 per bushel. Once the 25% tariffs are lifted U.S. soybeans will then become $2.75 per bushel cheaper to import than those from Brazil.
Parana is the second largest soybean state in Brazil and they have now cut their 2018-19 soybean production estimate from 19.1 to 16.8 million tons with 15% of the harvest completed. First crop corn output in the state was also reduced this month from 3.2 to 3.1 million tons, 2nd crop corn production was held steady at 12.7 million tons with 17% of that crop now planted.
Keep in mind that the soybean crop in Brazil is shrinking by the day. Since there has been no updated production estimates from the USDA for almost 2 months the current estimate for Brazilian production sits at a record large number. Many analysts now believe that this seasons production will likely be similar to their 2016/17 crop year. This would mean totals closer to 114 to 116 MMT’s vs the current (un-updated) USDA estimate of 122 MMT’s. The graphic below from the Van Trump Report shows the 1/22/2019 WASDE estimate (which has not been updated with new data) in comparison to totals over the past 10 production seasons.
The first billion dollar weather event of the New Year is occuring in Argentina. Many parts of the country are dealing with flooding caused by 3 weeks of torrential rainfall. More than 5.9 million acres of soybeans are submerged with agricultural losses listed at $2 billion according to Coninagro.
The Australian Government Bureau of Meteorology has reduced their expectations for the formation of an El Niño weather pattern to 50%. The previous 2 months the Bureau gave El Niño a 70% chance of developing due to sea surface temps reaching El Niño levels but other critical factors like trade-winds never developed.
Several rounds of Arctic air are expected to push into the U.S. through early February. Widespread sub- zero temperatures are predicted for the Midwest but they are not alone, below normal temps are also forecast for much of the U.S. as shown in the first map below.
The maps below indicate the outlook for the entire month of February.