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Update for October 26, 2018

Update for October 26th, 2018

Republican Senator, Charles Grassley from Iowa is urging the EPA to move forward immediately to allow year-round sales of E15. He stated that “waiting until May for action on E15 from the EPA was unacceptable. This summertime ban on the sales of E15 was originally implemented to reduce air pollution but studies now show that the ban had no effect. U.S. corn exports remain strong and are running ahead of schedule. In addition the carryout is looking tighter than earlier estimates and are smaller than supply numbers from a year ago, all of these factors are helping to shine a positive light on corn futures. These factors along with soybean trade uncertainties are why U.S. corn acres are projected to increase in 2019. Informa came out a week ago with their latest 2019 U.S. acreage estimates. They are now expecting 92.7 million acres of corn will be planted next season which is down 365,000 acres from their September estimate but this figure still sits 3.5 million acres above 2018.

Unfortunately the same cannot be said for soybeans as the outlook remains negative until normal export business resumes. Karen Braun from Reuters recently pointed out that, “on average 76% of U.S. soybean shipments in October are to China…Not this year! This is also when our U.S. exports typically tend to explode higher. Not this year!” The new trade year started 7 weeks ago and during this period USDA numbers show us that U.S. exports to China are down over -95% and overall total U.S. soybean exports are down over -40%. These factors help explain the forecasted decrease in soybean acreage numbers for 2019 from Informa. They expect U.S. producers will plant 83 million acres of soybeans in 2019. This is up 739,000 acres from their September projection but is still 6.1 million below 2018.

Kevin Van Trump of the Van Trump Report gave an important warning to producers that I thought I would bring to you: “Keep in mind, we were trading U.S. soybeans sub -$5.00 back in 2005 and sub -$6.00 in early 2007. I’ve got young guys in my office today who have never heard of such a thing. Yet, they can all easily recall the highs of 2012 at just under $18 per bushel. My fear is that “recency bias” can skew a lot of our thoughts about the future. In fact, many psychological studies have shown our “recency bias” can override factual evidence and the markets collective real-time sense of direction. In other words, we can convince ourselves and or don’t want to believe it’s possible for the market to go any lower. Be careful here…I’m certainly not forecasting an extreme like mentioned above, but without bullish headlines involving Chinese trade negotiation or weather complications in South America, I can envision a slow grind sideways to lower.”

At this time there is a tentative agreement between President Trump and Chinese President Xi Jinping to meet prior to the G20 summit in Buenos Aires on November 29th. The goal of this meeting is to design the framework needed to move negotiations forward. At this point though we are faced with a lot of uncertainty. Recently the chief advisor at the commodities consultant Shanghai JC Intelligence said that due to trade frictions between the U.S. and China they will be importing alternatives to soybean meal. Options of rapeseed meal, cottonseed meal, sunflower meal and palm kernel meal are all being considered as they have become more economical than soybean imports. This could potentially cut China’s demand for soybean imports by about 6 million tons.

The outlook for next week, October 29th – November 4th from WeatherTrends 360 calls for a “very strong surge of cold weather” which will envelop the western 2/3rds of the U.S. This cold front will move across the country and exit the East Coast by November 5th. For the U.S. overall this week is predicted to trend the coldest in 7 years and the #1 wettest.

We’ve been hearing for a few weeks now that NOAA is predicting a rather warm winter for much of the country. WeatherTrends 360 does not agree with this winter outlook from NOAA for these reasons:

  • 1st – the one cycle that most forecasters key in on is El Niño and this year’s event is a weak central Modoki, which is very different than the strong El Niño event like we experienced a few years ago.

  • 2nd – “The Blob” (shown in the map above) is an area of really warm water off the coast of Alaska and British Columbia. This typically allows for the development of a big high pressure to form in this region which causes the jet stream to move much further north in to Canada (warm) and then causes a downstream buckle to develop in the Eastern portion of North America (cold).

Meteorological fall began on September 1st and since then the weather pattern has made a significant flip flop going from a warm September to a very cold October. Since October 10th the U.S. has been the coldest in 9 years and the 4th coldest out of the past 3 decades.

  • 3rd - This combination creates a negative AO pattern. AO patterns are very conducive to cold and snowy weather for the Eastern half of the country.

  • 4th – Combine all of this with the solar minimum cycle-which is the weakest seen in 100 to 300 years and there are many ingredients available to make for an eventful Winter especially if you enjoy snow and cold.

Next week I will try to include some of the other outlooks for winter 2019. It will be interesting to compare them and see next spring which group got it right!

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