9/05/18 — We go through another week where trade talks dominate U.S. agriculture, and this week its 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 getting 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 failing to finalize an agreement last week, but the talk from Canada and Trudeau 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 they want a number of other issues (want to keep dairy and ‘cultural’ protection and others) 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 out of stubbornness, not 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. 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 bu/acre to 178.2 bu/acre (vs. USDA at 178.4 bu in August), and soybeans up 0.06 bu/acre to 49.2 bu (vs. USDA at 51.6 bu in August). It appears that USDA is close in corn, but way too high in soybean yield estimates (at least 2 bu/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 out Friday were bullish, with 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 5 year average. Wheat was down 1 mmt, or 3.3% from last year. Yields were down on virtually everything from last year, and is a disappointing finish to Canada’s once promising year. These numbers were also smaller than most trade estimates, but it doesn’t seem to be having a market impact. Canola yields were down 8.5%, which with 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 as heat in the summer (such as occurred in 2018) generally are 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, as after NAFTA our trade deficits just kept building and building each year, getting larger and larger. Eventually, communists/socialists run out of other people’s money to spend (Argentina, Russia, Cuba, etc.), and the U.S. was headed down that same path.