Weekly Update – July 27, 2018

USDA’s Compensation to Farmers
The program announced this week was 12 billion dollars to compensate those negatively affected by the trade war. The calculations have not been released yet as to how the payments are going to be made, but the speculation is direct payments against 2018 harvested bushels for producers of soybeans, sorghum, corn, wheat and cotton as well as dairy and hog producers. The program will be administered through the CCC so it does not require congressional approval but it does not appear as though the payments will be made through the loan program or crop insurance as has been rumored. I think all stakeholders would rather see progress on the trade dispute rather than government compensation, but it may make China more willing to come back to the table by compensating farmers for the damage instead of giving in to the Chinese pressure. Since China is such a big exporter to the US and does not import much, ag commodities are just about the only area they can exert pressure on. We will keep you posted with the details as USDA makes them available. 

After spending the first half the summer feeling like everything was against corn, the market has finally been able to pull together a rally that has continued since the low two weeks ago from yesterday. The weather forecasts have remained nearly perfect in the Midwest and the crop is one of the top rated crops and very quickly maturing. In the face of this, there are fringe areas that are not perfect with some areas lacking rain and some with too much. There was also some significant heat during pollination which may have taken the top end off yield. We have closed the window for a major weather threat in the midwest but the market has had a chance to price in a perfect crop. Anything less than absolutely perfect should be bullish to this market. We will not have the crop in the southeast this year we have in the last couple years. Many areas have been both too wet and too dry at different points in the growing season. Domestic demand has remained strong and the world balance sheet continues to get tightened up feeding the market. Exports were strong this week and there seems to be progress with Mexico on trade. Significant progress has been made with the EU. Recent news flow continues to favor the bulls for a change! If we get any drop in condition ratings next week, it will help propel this market to keep climbing. Remain patient on corn for now.

Harvest is just beginning in Georgia, and SC will be right behind as they dry out from the recent rains. Midwest may have a very early crop but it remains to be seen if NC/SC was able to make up ground after having a late start for the crop. There may be early basis opportunities if harvest gets delayed any.

Soybeans had plenty of news to price in this week with the announcement of the $12 billion dollars of compensation to farmers for the trade dispute as well as progress made with the EU. The possibility of a trade deal with the EU helps the narrative but does not make a real change to the market. US beans are already the cheapest beans in the world so everyone except China is going to be buying beans from us. With Brazil and Argentina sending so many more beans to China, the countries that were buying beans from them will have to source from somewhere else. Export sales for this week were strong. August weather makes bean yields and so far the weather has been cool and wet in most areas in the Midwest. Forecasts for continued cool and wet are leading many to raise yield estimates in the US. A 50 bushel crop or higher will push US carryout to a record high. While we will be able to export beans to other countries, it is doubtful we will be able to fully replace Chinese demand in only one year. Any progress on trade will be very bullish to the market. 

Wheat posted a very strong move for the week as problems in Russia, the Black Sea and Europe finally caught the markets attention and pushed Chicago wheat to six week highs. Both production and stocks estimates are being lowered in Europe. The stronger US dollar had previously kept US wheat from joining in the rally as we need to stay competitive. Exports pace is a bit behind but market is looking for that to catch up as the price has rallied on other world exchanges keeping our wheat competitive. International Grains Council cut 18-19 wheat production 2.2% from their last estimate contributing to the narrative of continued shrinking world supplies. 

Conditions continue to deteriorate in Texas and despite what is typically a seasonally slow period and continued trade tensions, cotton exports have remained very strong. Export pace is almost twice the five year average. This blistering pace may lead USDA to adjust export numbers even with the trade tension. The forecast models have shifted some moisture to the hardest hit areas of Texas and if it keeps moving south it will ease the stress, but a good deal of the dryland cotton is already considered abandoned it has been so severely stressed. The longer term forecasts turn back dry after this event. Market looks for USDA to make another cut to US production on the next report.