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Trade Talks, Crop Size Dominate Grain Markets, Analyst Says

U.S. trade talks keep investors’ attention.

It’s another week of trade talks in U.S. agriculture.

This week, it’s talks with Canada as well as discussions with the EU about trade, including allowing the U.S. to have some of the high-end beef markets that Argentina has been allocated. 

Only so much can be imported into the EU tariff-free (it also is protected like all of EU agriculture), but most of that allocation is going to Argentina, not the U.S. 

Talks with Canada begin, again, today in Washington, after no agreement was finalized last week. The talk from Canada and Trudeau, however, is that Canada will not compromise on some key issues including the dispute resolution system.  

Canada wants the old one that the U.S. says is used to punish them, and the U.S. wants to scrap it (which Mexico already agreed to). Canada also says it wants a number of other issues ( the country wantw to keep dairy and other cultural protections) and won’t compromise. So, it doesn’t sound promising for now that Canada will join in with the Mexican agreement. 

My view is that the Trump administration expected as much, and I believe we will not include Canada initially in the results as Trudeau won’t agree to the U.S. terms, no matter how much his country will be hurt. And it will be hurt, according to estimates, about four times worse than the U.S. economically. The Canadian leader seems to be sticking to his guns. That is probably why the U.S. went ahead with an agreement with Mexico, as Canada appears unable to understand its big brother to the south’s situation.  

The EU’s willingness to discuss importing more high-end, quality U.S. cattle (instead of Argentina getting most of the tariff-free exports to EU) supported cattle markets yesterday. We need more wins on the export front to boost U.S. agriculture profitability.  

Crop conditions and progress, yesterday, showed corn conditions down 1% to 67% G/E, and soybeans steady at 66% G/E.  Corn yield models were up fractionally, up 0.33 bushels per acre to 178.2 bushels per acre (vs. USDA at 178.4 bushels in August), and soybeans up 0.06 bushel per acre to 49.2 bushels (vs. USDA at 51.6 bushels in August). 

It appears that USDA is close in corn, but way too high in soybean yield estimates (at least 2 bushels per acre). With a relatively warm summer pushing crops along in maturity all summer, it’s unlikely yields will be as high as projections by many, especially in soybeans. 

Instead, southern areas of the Corn Belt will likely see yields trimmed somewhat due to heat pushing maturity along. While the crop is good, it’s probably not as good as many are touting, especially the USDA soybean yield estimate.

Crop progress is advanced after a slow start this spring, with corn dough at 96% (5% ahead of normal), and 75% dented (15% ahead), and 22% mature (11% ahead).  

Soybeans are 16% dropping leaves (7% ahead), and cotton is 96% setting bolls (normal), and 29% bolls opening (3% ahead), with conditions down 3% this week (41% G/E). 

Sorghum is 96% headed (1% ahead), 69% coloring (7% ahead), and 30% mature (3% behind) and 22% harvested (1% behind) with conditions 52% G/E (1% down from last week and 11% down from last year).  

HRS wheat is 87% harvested (12% ahead), barley 84% harvested (1% ahead), and oats 94% harvested (3% ahead). Soil moisture improved after a wet week, with topsoil moisture up 3% to 67% adequate/surplus, and subsoil up 2% to 63% adequate/surplus. We are now actually a bit wetter than last year at this time.  

Canada’s 2018 production numbers, released last Friday, were bullish. It estimated smaller crops than normal across almost all sectors (wheat, canola, other crops). Prairie grain production will drop 5 MMT, or 7%, to 66.6 mmt, down 4% from the five-year average. 

Wheat estimates were down 1 mmt, or 3.3%, from last year. Yields were down on virtually everything from last year, and it’s a disappointing finish to Canada’s once promising year. These numbers were also smaller than most trade estimates, but they don’t seem to be having a market impact. Canola yields were down 8.5%; a 2% decline in acres will lead to a 10% decline in production, another disappointing figure.  

Harvest of fall crops will start quickly, even in the northern parts of the U.S., as crops are maturing quickly after a relatively warm year. Harvest results will be interesting, with Pro Ag expecting relatively large crops in the northern half of the Corn Belt, and southern half crops not as impressive because heat in the summer (such as occurred in 2018) is generally not good for southern crops. 

Also, some areas were hurt in yield potential by dryness this summer in late July and early August. So, while many estimates are for record-large yields (USDA as well as private estimates), we think some of those estimates will be trimmed by January (especially soybeans). We note that Canada production estimates are already shrinking, as it wasn’t as ideal a summer as many seem to think.

Perhaps we are closer to the bottom than many think? The final crop size will determine much of that impact, but the trade news is improving as we go forward, with the U.S. winning on many issues. 

But you can’t win trade disputes if you don’t ask for what you need, and the U.S. is clearly a loser in many trade situations as indicated by our huge trade deficits with so many nations. Mexico is a great example. After NAFTA, our trade deficits just kept building and building each year, getting larger and larger. 

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.  See http://www.progressiveag.com for rankings and link to data from Top
Producer Magazine and Agweb.com.

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