Spring Weather Outlook and the Latest on Trade Negotiations
Update for February 28th, 2019
The month of February is ending and will be entering, what is typically the best time of the year to make crop sales. Even though we have not seen any reward given to the market, fundamentals have actually improved since December. The USDA reduced the size of the U.S. corn and soybean crops in the report earlier this month, the soybean crop in being harvested in South America is smaller than earlier estimates and there is great hope that China and the U.S. will sign a new trade agreement next month. In all reality though, what our grain market needs is actual Chinese purchases rather than the promise to do so.
According to an article yesterday by Reuters, we need more than promises from Beijing to purchase more U.S. goods in the future to resolve our differences, we must also be able ensure these commitments are met and are enforceable since China has failed to keep promises made in the past. U.S. Trade Representative Robert Lighthizer told the U.S. House of Representative’s Ways and Means Committee this week that it’s too early to predict an outcome of the talks but China is seriously engaged at the highest level and significant progress is being made. Lighthizer said that China is “very aware” of the U.S. Congress’ strong support for structural changes which is “critical in persuading China to take our concerns more seriously”. He also noted that the negotiations with China have presented the biggest challenge ever addressed by U.S. Trade Policymakers but that there are reformers within the country of China and we are working closely with them to reach a resolution.
President Trump told a group of governors on Sunday at the White House that, “We’re doing very well with China. If all works well, we’re going to have some very big news over the next week or two, and it’s really been terrific. We’ve put ourselves into a position of strength for the first time in about 35 years or probably a lot more than that, but China’s been terrific. We want a deal that’s great for both countries and that’s really what we’re going to be doing.” (FOX News)
Ag Secretary Sonny Perdue announced on Tuesday that U.S. trade negotiators have asked China to reduce the retaliatory tariffs (tariffs of up to 70%) on U.S. ethanol shipments. The tariff has made exports to the Chinese market uneconomical. He said that as of now it’s unclear whether or not they will agree to the request, “They are engaged in conversation, they listen and hear us, but at this stage (we are) unable to determine the willingness factors.”
Corn prices have been moving within a narrow price channel for several months and now prices are close to breaking below the lower end of that range. Corn has struggled to find any positive news to help turn the trend higher due in part to these almost daily headlines:
The talk of more corn acres in 2019.
Higher corn yields than a year ago in the Ukraine, Brazil and Argentina.
The drop in ethanol demand.
Growing competition from feed alternatives.
Corn prices have fallen by 9% in the past year and 3.5% in just the past 30 days but not everything is gloom and doom in the corn market here are a few of the bright spots to consider:
The promise of E15 use this summer seemed in doubt when Ag Secretary Sonny Perdue told the House Agriculture Committee that the EPA would not have rules prepared in time for the summer driving season. Later that same day Perdue and the EPA both said that the needed documents would be completed in time for the 2019 summer driving season which will be a much needed windfall for the ethanol industry.
Due to the dryness in southern Brazil many analysts believe that those additional corn bushels won’t greatly impact the export market as more corn is expected to remain within the country to help supply their new ethanol plants.
There is also some news circulating that South Korea may soon be stepping in for another round of U.S. corn purchases.
Ongoing hope that China will eventually step back into the U.S. market and purchasing a substantial amount of U.S. corn, ethanol and DDG’s.
Rivers in several key areas are starting to flood and as temperatures begin to rise over the next several weeks the huge snowpack will begin to melt which will likely make the situation much worse. Wet fields and flooding across a large portion of the Corn Belt…maybe this will be the first weather story of crop season 2019.
We have not seen the Chinese step in as big buyers of U.S. soybeans and the many good intentions we’ve heard about but that have seen very little action on is pressuring the market. Not to say that China isn’t importing any U.S. soybeans because U.S. exports to the country have nearly doubled from December to January. Chinese customs data released earlier this week showed the country brought in 135,824 tonnes of U.S. soybeans in January compared to 69,298 tonnes in December. Even with this impressive one month increase the total volume is still down 99.7% from a year earlier.
Crop insurance guarantees are updated daily and will soon be set as we are now at the end of the month of February. The corn and soybean charts below indicate where prices are as of today and then are followed by a list of the past 6 year’s spring and fall prices for comparison.
Corn - 2019 Spring Price - $4.00
2018 - Spring price $3.96; Harvest price $3.68 2017 - Spring price $3.97; Harvest price $3.49 2016 - Spring price $3.86; Harvest price $3.49 2015 - Spring price $4.15; Harvest price $3.83 2014 - Spring price $4.62; Harvest price $3.49 2013 - Spring price $5.65; Harvest price $4.39
Soybean - 2019 Spring Price - $9.54
2018 - Spring price $10.16; Harvest price $8.60 2017 - Spring price $10.19; Harvest price $9.75 2016 - Spring price $8.85; Harvest price $9.75 2015 - Spring price $9.73; Harvest price $8.91 2014 - Spring price $11.36; Harvest price $9.65 2013 - Spring price $12.87; Harvest price $12.87
Bayer AG is in court once again facing charges that its popular glyphosate-based weed killer Roundup causes cancer. Reuters is reporting that this lawsuit by a California man against the company has been consolidated with 760 other Roundup cases and is currently underway in a federal courtroom in San Francisco, CA. This trial is a test case for larger litigation, there are currently 9,300 Roundup cases nationwide. *Analysts at a Brazil health agency Anvisa have determined that the glyphosate weed-killer does not cause cancer. Brazil bans the use of any agrochemicals that are found to be carcinogenic and following the findings by Anvisa the sale of glyphosate will continue to be allowed even amid increasing international pressure to reduce the use of the chemical.
Forecasts for next week, March 4th-10th shows signs of the Polar Vortex making a return. Models indicate that the Vortex is expected to reach into Southeast Canada delivering another major cold outbreak for much of the Plains, Midwest and northern Rockies. Temps are expected to again reach below zero and could break many record lows as it this cold air reaches the northern Rockies and northern Plains by tomorrow and then plunges into the Plains and Midwest this weekend. The cold scenario is expected to remain in place for at least the first half of March according to current medium-range forecasts. If all of this holds true it will be the coldest start to the month of March in over 30 years overall for the entire U.S. and the snowiest in the past 20 years. The good news is that when the Polar Vortex exits a warm spring surge of air is expected to follow.
The probability of an El Niño developing by May has now reached 60% according to the World Meteorological Organization this week. The WMO also expects that any El Niño (which is associated with droughts and flooding) that may form would likely not be strong. The last 4 years have been found by the WMO to be the warmest years on record and the weak El Niño of 2019 is predicted to produce temps above those of 2018.
The map below is from Weather Trends 360 and shows their expectations for the May through September time frame.
**When I enlarged the precipitation portion of the map and looked at several of the states nearest the Ag Performance office, it appears as though drier conditions than 2018 are expected across Iowa and Southern MN and wetter condition are forecast for Missouri, the eastern ½ of South Dakota and the northern 2/3rds of North Dakota.