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277472

Weather, China’s Election Reaction to Drive Markets, Analyst Says

U.S. still looks for a 25.0-million-soybean-acre customer replacement.

It has been a year of harvest swings, first with good harvest weather to start the year, and then turning worse and worse by week until October.

The month started with perhaps the wettest week of the year in many locations. 

This week we are back to decent harvest weather with almost no rain and actually warm weather in the western Corn Belt (but cool in the east). That is allowing harvest to roll quite nicely in areas that have dried up. The problem is, the weather forecast is for a return to cold/wet weather in the eight- to 14-day forecast, which could spell more trouble for harvest.  

Weather forecasts remain much improved for the Corn Belt the next seven days, with harvest rapidly accelerating in most of the U.S. (the only rain is in Texas and Louisiana today). Temps will be above normal in the western Corn Belt (and western U.S.), and below normal in the eastern Corn Belt (and southeast).  But it will all change in the eight- to 14-day forecast, when weather turns to above normal precip and below-normal temps. 

That is bad news for Northern areas, where snow is always a possibility in late October and into November. When it snows that time of year, sometimes it doesn’t go away and just continues to pile up.  That would effectively end the harvest for soybeans, which requires combines to shave off soybeans close to the ground. Corn harvest can continue for months afterward, though, which is why farmers are focusing on harvesting soybeans right now.  

USDA released another crop progress report yesterday (Monday, October 22), and it continues to show harvest falling further behind normal in many crops. Corn harvest is still 2% ahead of normal at 49% complete, but soybean harvest is 16% behind normal at only 53% complete. 

Soybean and corn conditions were unchanged this week at 66% G/E soybeans and 68% G/E corn, with the Pro Ag yield model for corn dropping slightly at 176.6 bushels per acre (now down 3 bushels per acre from the peak 9/24), and well below USDA's 180.7-bushel estimate in October. 

Soybean yield estimates are also well below USDA’s lofty numbers, and they, too, are likely to see reductions in future reports.   

Cotton bolls are 88% opened (1% behind normal), and 39% harvested (6% ahead of normal).  Cotton conditions declined 1% to 34% G/E, well below last year’s 56% rating. 

Sorghum is 46% harvested (10% behind normal), while conditions declined 2% to 53% G/E due to excessive rains recently. 

Sugar beets are 65% harvested (10% behind normal), and sunflowers are 19% harvested (9% behind normal).  

Winter wheat is 72% planted (5% behind normal), and 53% emerged (2% behind normal). Some winter wheat will need to be replanted due to excessive rains – the same weather causing planting delays.  One producer in central Kansas said they received 8 to 12 inches of rain this fall – which has only occurred once before in the past 60 years! So it’s been wet in many areas, but most producers already know that!  

The U.S. election coming up in early November seems to be an event the Chinese are waiting for in their strategy for trade negotiations with the U.S. Ironically, we have not heard much about the additional $257 billion in Chinese trade tariffs intended to be placed, nor the increase to 25% from 10% on the already imposed $200 billion in tariffs. So, perhaps, both sides are waiting to see the results of this election.  

In Brazil, the right and left are paired up in a heated contest between the candidate stabbed in September while campaigning (Bolsonaro), and the leftist candidate replacing the imprisoned leftist politician (Haddad). On October 28, ballots will be cast for the second time (in Brazil, all citizens are forced by law to vote), and the winner will run the Brazilian country (the chief supplier of Chinese soybean imports). Yes, Brazilian politics is even more volatile than the U.S. – in fact, much more so.  However, since crazy, outrageous strategies work so well in recent U.S. elections (usually throwing mud until something sticks), it’s starting to become even more that way in the U.S. Unfortunately, that is not a good thing for the U.S. in the eyes of the world, where we were once an example for the merits of a democracy.  

So U.S. agriculture plods on, still trying to find a replacement for a 25-million-acre customer (China), who no longer wants to buy soybeans from U.S. Or at least, that’s what they’ve said so far. It has been accused of stealing essentially $50 to $100 billion in wealth from the U.S. through various businesses via its intellectual property practices. Apparently, it doesn’t want to give up these practices, so the $50 billion estimate just actually might have some merit to it. China was buying about 1.2 to 1.4 billion bushels of soybeans from the U.S. (about $13 billion worth), so if the $50 billion estimate of the value of intellectual property is right, it is understandable why it doesn’t want to change its practices.  

The political gamble was that China felt it could make Trump/Republicans pay at this midterm election for their tough stance on trade, and that election is rapidly approaching (2 weeks). If Trump is soundly defeated, China prognosticators speculate that China will have the upper hand in future trade negotiations. If Trump/Republicans win, China will struggle to maintain its tight stance on trade. (Its stock market is down 25% so far this year, and growth is slowing considerably from previous years.) It will be interesting to see the results of the U.S. election, but more importantly, how China will react to the results. It could be interesting.


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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