Content ID

279627

A Plethora of Ag Market News, Analyst Says

The markets have a lot of news to digest.

For once, trade with China isn’t the only news item affecting American agriculture this week.

The other market news deals with a new farm bill this week, new purchases by China, new lows in U.S. equities markets, and finally news that Judge Lundstrum has approved the Syngenta/Corn Farmer $1.51 billion settlement.  

Ironically, many of these items are inner-related (China as a common thread) as the new farm bill, of course, is always very important for farmers, with lots of impact on U.S. farms. It was passed in the House before the newly elected come in, which is a switch from a Republican-controlled House now to Democratic control in January.  

Second, Pres. Trump announced December 17 that the final Trump payments will be made in January for the trade impacts with China, also providing some comfort to farmers this Christmas season. China itself also was announced to have purchased some U.S. soybeans (at least 1 mmt), with supposedly more on the way. Of course, that is huge news for agriculture, the most important being the hope that the U.S. and China will resolve their trade differences in the next 45 days, and U.S. farmers can once again sell to their Chinese partners (without the Chinese government as a partner).  

U.S. stock markets set news lows for the year this week, pushing down on the market’s concerns over trade issues with China (China stocks dropped hard earlier this year). In fact, perhaps that is the pressure placed on both President XI and Trump to learn to get along and make a trade deal!  Both countries have endured hard falls in their stock markets, with economic concerns of a recession (or worse) not far behind. Perhaps the best thing that can happen to farmers is an extreme drop in both the U.S. and Chinese stock markets. It might put as much financial pressure on Presidents Trump and XI as farmers have had to endure since last June.  

Finally, the Syngenta $1.51 billion settlement recently approved by Judge Lundstrum is finally a done deal, with farmers expected to start getting checks by the second quarter this year. The entire lawsuit came about due to China rejecting shipments of U.S. corn in 2013 due to unapproved Syngenta varieties of corn mixed into the corn supply – damaging U.S. farmers economically. Ironically, Chem China bought Syngenta just a few years later for about $45 billion (while the lawsuit was ongoing). Ironically, the U.S. has accused China of stealing intellectual property from American companies. In this case, they did the old-fashioned (Microsoft?!) way –  they just bought it.

The U.S. House passed a farm bill Wednesday, December 12, which the Senate earlier passed so now will be signed by Donald Trump. This marks a long path to finally get here, with the work provisions for food stamps, which constitute 80% of the $867 billion bill’s cost, taken off in the compromise between the House and Senate versions of the original bills. The bill legalizes industrial hemp, expands eligibility for subsidies to more family members (cousins, nieces, nephews), and in perhaps the most important provisions – strengthens the ARC and PLC protections through 2023.

Specifically, producers get a new choice between ARC and PLC on a crop by crop, farm by farm basis, applied jointly to the 2019 and 2020 crop years, and then annually in 2021 and beyond.  PLC (which is likely to increase considerably in popularity due to current low prices) can adjust upward with improvements in prices. The new PLC price will be the greater of 85% of the five-year Olympic average OR the PLC Reference price from 2014, but limited to 115% of 2014. For 2014, corn was $3.70 (new max $4.26), soybeans $8.40 ($9.66), wheat $5.50 ($6.33). In 2020, farmers can finally update their yields for PLC payments (like in 2014), so with much higher yields lately, almost all farmers will want to do this (and almost all farmers will likely be in PLC on most or all crops).

So the new yields will be 90% of 2013-2017 yields (mostly good years) × a “yield update factor” by commodity (corn/soybeans .90, wheat .9767, barley .9714, sunflower .9378), with a yield plug for any year below 75%.     

ARC-CO also has many improvements, one of which is to prioritize the use of RMA yield data for calculating county yields in accordance with HR4654 (finally!) so farmers don’t get dinged by bad NASS data again (it happened often in the last bill). Payments will be based on where the land is, not where administered.  

In a quick first reaction to the new bill, there are many good things and improvements. Perhaps most likely to occur is farmers will choose PLC overwhelmingly in this new farm bill for the first two years, but the beauty is they can switch after the first two years to whatever is better for them at the time (with price history/outlook the most important factor). Before, once selected, you couldn’t change even if conditions did change. However, there will be lots of calculations to make each winter now (not just every four years) once the choice kicks in after 2020.

That's a lot of positive developments for agriculture this week, perhaps the most positive week of news for U.S. agriculture since at least June 1 (and maybe all year).  We can use that gift as we enter this Christmas season, when we received the greatest gift of all.   

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Ray Grabanski can be reached at raygrabanski@progressiveag.com.  
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Ray Grabanski is President of Progressive Ag Marketing, Inc., the top Ranked marketing firm in the country the past 8 years. 

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