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USDA Report Worksheet, Spec Funds and A Cold Forecast

Update for December 5th, 2019

This week the USDA estimated that nearly 9 million acres of the U.S. corn crop remains in the field. The states of North Dakota, Michigan and Wisconsin hold the biggest share of those unharvested acre but Illinois, Indiana, Iowa, Minnesota and Ohio also have a significant number of acres involved.

When looking at the activity of the spec funds over the past month it seems as though they have quit selling corn since their position has not changed by more than 20,000 contracts in the last 4 weeks. Corn prices have been range-bound since mid-November which also indicates there is currently little interest in holding big positions. Since mid-October corn prices have generally trended lower but once the trend turns positive expect to see the spec funds become buyers once again and push prices higher.

Spec funds are known for not keeping their positions for long because they like to follow the trend. This fact is our best hope for soybean prices. The funds have sold off the bean market for several weeks now which means we need them to begin buying soybeans again to move the price higher. There seems to little incentive for that to occur given our current circumstances. We need some positive headlines but there doesn’t seem to be any on the horizon. Recently we’ve heard claims that China has been booking cargoes from Brazil for December-January shipment which is adding to concerns regarding the progress of the U.S./China Phase 1 trade negotiations and in addition our South American counterparts have had mostly favorable growing conditions. These facts have had our JAN20 soybeans stuck in a range between $8.60 and $9.00 for some time now and it appears as though it will take a major new headline to break prices out of that range and to the upside.

The USDA will release the latest WASDE and World Agriculture Production reports next Tuesday, December 10th. Trade estimates for key numbers are included in the graph below.

The USMCA has received a major setback from House Democrats. Mexico’s government and business leaders are upset by the major change being demanded by the U.S. Democratic-controlled House. Democratic leaders asked U.S. Trade Representative Bob Lighthizer last year for changes that would allow the U.S. to challenge labor practices that involve products moving across the border between the two countries. Mexican business leaders along with President Andres Manuel Lopez oppose such workplace inspections. They believe that the changes demanded by the new provisions of the USMCA agreement should be sufficient. They pointed out that they have made the required changes to meet the new provisions and have allocated funds in next year’s budget to allow for the costs involved with enforcing those changes. Mexico’s trade negotiator for North America Jesus Seade arrived in Washington Tuesday for additional meetings.

Iowa’s republican Senator Charles Grassley told reporters on a conference call this week that he is optimistic the EPA will modify the RFS mandates. Grassley met with President Trump on November 19th and stated “I’m very positive about what the president feels” because “I heard him tell Wheeler, it’s got to be 15 billion gallons.”

President Trump has announced plans to restore tariffs on metal imports from Brazil and Argentina. On Monday the president tweeted, “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers. Therefore, effective immediately, I will restore the tariffs on all steel and aluminum that is shipped into the U.S. from those countries.” Trump is also asking the Federal Reserve to prevent countries from devaluing their currencies as a way to increase their economic advantage over the U.S. “The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar. Lower Rate & Loosen-Fed!”

Odds are currently favoring a wetter-than-normal winter and the National Weather Service says this will lead to a higher risk of spring flooding across the northern plains and into the Great Lakes. Meteorologist Chris Flotz told Brownfield Ag News, “When you combine that with the conditions we’ve seen over the last 16-or-so months across the northern plains it’s really kind of setting the stage for at least the potential for some significant flooding as we move into the springtime and that winter snowpack begins to melt off.” Saturated soils will not permit much of the winter precipitation to melt into the ground next spring which will causing more runoff and higher water levels in the creeks and rivers downstream. “The bigger concern is going to be next spring when we start to see things thaw out, especially along the main stem rivers like the Missouri, the Red River in the north and the Mississippi Rivers. Those all could be impacted next spring if we have an active winter.” He also advises farmers to plan on wet conditions for planting season. “Farmers know better than anybody where they’re used to seeing moisture on their land, and so, just be aware of it, know that the potential is there, and do everything that you can to prepare ahead of time.”

Enjoy the warm temps this week because forecasts indicate it will not be sticking around. Continued dry conditions and frigid temps out of Canada are expected to make their way into the Dakotas and Great Lakes region beginning early next week. In the graphic below you can see the ridge across the western U.S. and Canada which will funnel cold air into the central U.S. around December 10th or 11th and yet another the following week.

Expectations for the winter of 2019/2020 have been compared to those of 2013 and if temps fall as predicted it could be the coldest December since that year. As we’ve learned about in the past when the Polar Vortex is displaced from its natural position near the North Pole temps across Canada and the eastern 2/3rds of the U.S. fall…drastically.

Temperature departures from normal for this event are shown in the map below.

Some forecasters have begun to mention the possibility that a major winter storm may form and move into the U.S. next week. It’s too early right now to say if it will occur, how intense it may be or where it would track across the country. The severity of the cold temps will have a large impact on the details of this potential storm. The total estimated snowfall from the EURO EPS for the potential system this coming week and the second anticipated system the following week are indicated in the map below.

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