Rural Voice October 17, 2019
What would a grain commentary be without reporting the questions and rhetoric about trade deal announcements! Headlines emerged in mid-October, saying that the US and China had agreed to “Phase 1” of a trade deal. This announcement, reported to be only one of a multiple phase deal, was enormous in terms of trade volumes. US President Trump announced that China has agreed to secure 40-50 billion dollars of US agricultural goods. This amount of agricultural trade would be extremely large if accurate; in 2017 China bought 27 billion dollars of US ag products with normal trade relations, before the trade war began. Chinese authorities have not confirmed the reported trade volumes, rather they stated their stance is that before negotiations are continued intentions for US December tariffs increases must be dropped. China’s goal is to gain more concessions from the US, including dropping of the December tariff increases of 15% on $156 billion of consumer goods before proceeding further. The US is pushing for negotiations to happen quickly and has not yet dropped their intended tariff increases. It is reported that Trump and Xi (China’s premier) will sign the Phase 1 deal at the APEC summit November 16-17th. This political situation and reported trade progress negotiations have been supportive to US grain and oilseed markets. Increasing demand from China, concurrent with declining expectations for US production have underpinned market prices and supported values.
Recent USDA reports have shown that US soybean ending stocks and inventories have been falling substantially. With current production estimates, 2019/2020 ending stocks are estimated to be 460 million bushels, down significantly from last year. This carryout estimate could fall further in subsequent reports.
US crops, similar to our crops, are noticeably behind for the time of year. As of mid October, US soy harvest is running about 2 to 3 weeks behind the average pace, with only 25% harvested versus the average 50% usually harvested by this date. The late maturity and therefore late harvest has made a large amount of the US soy harvest susceptible to winter damage. The early snow storm in Western Canada, the great plains and parts of the US corn belt had the ability to impact harvested acres and yields over vast acreage. It is estimated that 15 million acres were impacted by freezing and snow – most notably in North and South Dakota, but also in parts of Iowa, Minnesota and Nebraska. North Dakota, the fourth largest soy producing state in the US, with 5.7 million acres of beans, was only 13% harvested when a substantial winter storm hit. Because of the anticipated severe impact of the storm, the USDA announced that they will re- survey both corn and soybean acres in two states: North Dakota and Minnesota. If significant production changes are found the USDA will release these results on Nov 8th, in the November Crop Production Report. South America has been off to a slow start, with dry conditions slowing plantings of soy in both Brazil and Argentina. Long term the forecasts are for dryness to continue in South America, and from this there are concerns of production estimates being trimmed lower. The take away from this conversation is that soybean prices will likely be sensitive to South American production estimates as we head into the new year. US soy stocks are not going to be sufficient to buffer large South American production losses if they were to occur.
Local soybean harvest has been making good progress as we cruise through October. With the late planting earlier this year, everyone was hopeful that we would not see an early frost- luckily this exactly what we got – no frost until late in the season. Soybean yields in Ontario are generally lower than last year. Last season we saw great yields, well above trend line, while this year yields are likely to return to trend at best. With the price outlook generally favorable as we discussed previously, producers are shipping against contracted beans and largely storing the balance. Compared to last year, Ontario beans do not see the extraordinary export demand that we experienced during the 2018 harvest. The big difference is China. Last year China was scrambling to buy all the soybeans they could from non US sources, as the trade dispute was ramping up. This year we do not have this opportunity, as Canada also has trade issues with China. This year the US has greater opportunity with China than we do. They have delegations meeting with China, working towards resolution. Canada isn’t even invited to the table.
While there are concerns that the winter storm impacted US corn production in some regions, the market generally shrugged off the concerns, choosing rather to wait for actual harvest yields before becoming too anxious. There are some estimates that the storm may have caused a yield reduction of about 200 million bushels of US corn, as the overall crop was only rated about 73% mature versus the average maturity of 92% for this time of year.
US corn demand continues to suffer as Brazil and Argentina continue to be aggressive shippers. Brazil is on pace to match record October shipments, over 5 million tonnes this month. Likewise Argentina is likely to break their October export record by an estimated 1.3 million tonnes, for a total export of 3.5 million metric tonnes during the month.