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Update for August 5th, 2022

China/Taiwan and U.S. Ag Exports

There is so much influencing the grain markets right now outside of the concerns we are accustomed to. The Fed has taken some aggressive action in raising interest rates which has made the market nervous. In addition, the visit of the Speaker from the U.S. House of Representatives Nancy Pelosi, to Taiwan this week has angered Chinese officials at a time when the U.S./China relationship is already strained. Shortly after Pelosi arrived in Taiwan China sent fighter jets to the Taiwan Strait and warned that they were planning to conduct “live-fire exercises” around the island nation. This tension is a big deal to our ag market in China. During the 2020/21 marketing year China accounted for over ¼ of all of the demand for U.S. soybeans. This marketing year will conclude on August 31st but overall, the breakdown of demand for U.S. soybeans is expected to look very similar. It’s unclear what the White House and Pelosi had hoped to gain by visiting Taiwan. Common sense should be enough to realize that there is very little to achieve by angering the largest customer of U.S. ag products as well the nation’s “biggest global adversary”. Following her visit the Chinese Foreign Ministry announced “unspecified” sanctions against Pelosi and her immediate family members. She is the highest-ranking U.S. official sanctioned by the Chinese government. A spokesman for the Chinese Foreign Ministry said that the new, escalated tensions between the U.S. and China/Taiwan are “entirely caused by Speaker Pelosi and U.S. politicians.”

There is some good news today in regard to China. Reports indicate that the Chinese recently purchased U.S. soybeans out of the Gulf. This may be due to the lack of supply out of Argentina. Apparently, producers have been reluctant to sell and aren’t expected to anytime soon either because of the countries “smoking hot” inflation. This may bring even more interest to U.S. soybeans in the coming weeks.

The newly formed alliance between Chinese leader Xi Jinping and Russian President Putin is very worrisome. The Russian defense ministry accused the U.S. of being “directly involved” in the Russian war with Ukraine because of the supplies of arms that have been sent to Ukraine to help them defend against the Russian military. Analysts are worried that these accusations may be an excuse they have invented to justify any future attacks on NATO nations, U.S. targets or the escalation of the war to areas beyond the borders of Ukraine. Military experts don’t believe that Russia has the resources or soldiers needed for the expansion of the war-front. But these experts warn that Putin may have plans to instate a military draft and justify this action using a “war with the U.S.” as his reasoning.

The first shipment out of grain from a Ukrainian port occurred this week and passed the required inspections in Turkey. Turkey had expected that around one ship would leave Ukraine each day but following the successful departure of the first ship one Turkish official told Reuters they now expect that up to 3 ships may be able to leave Ukrainian ports each day.

Next Friday, August 12th the USDA will release its monthly Crop Production and WASDE report. In the meantime, private groups are releasing estimates and so far, all have lowered yields below June yield estimates for both corn and soybean crops. The USDA’s yield estimate from June has an estimated corn yield of 177.0 bushels per acre and 51.5 bushels per acre for soybeans but many feel that the trade does not fully realize the extent of the dryness and the toll that extreme temps have taken on yields and therefore has not been factored into current estimates. Keep in mind though that until September the USDA does not use actual field surveys to determine yields so a large swing in yield estimates isn’t likely in next week’s report. Bigger adjustments are generally made once combines start rolling.

The private group StoneX has released its estimates ahead of the official USDA reports next week. They base their estimated yields off from customer surveys as well as other factors. Currently StoneX has the national U.S. corn yield average at 176 bushels per acre and the U.S. soybean yield at 51.3 bushels per acre. Another familiar name in the industry is that of crop scout Dr. Michael Cordonnier who expects a U.S. corn yield of 174.0 bushels per acre and a soybean yield of 50.5 bushels per acre.

The U.S. Drought Monitor updated this week. Key corn and soybean growing areas continue to worsen. Acres experiencing drought:

Corn acres now affected sit at 31% vs 19% in June

Weather models have varied substantially for a while now and this weekend and next week continue the trend. Lately most of the GFS models have shown very extreme outlooks, the EURO has been more accurate lately so many of the maps I have included are EURO outlooks.

Get ready for a very warm day tomorrow followed by a cooler and wetter day Sunday. EURO model forecast highs Saturday are shown in the first map, highs for Sunday follow in the second map.

The humidity level is also expected to be quite high over the weekend which when added to the heat will stir up instability in the atmosphere. Currently the heaviest rainfall is expected to fall across northern Iowa and southern MN into central Wisconsin starting Saturday night and into the day on Sunday.

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