Market analyst: Let the trade games begin

Ray Grabanski Special to the Farm Forum
Farm Forum

6/26/18 — Trade talk is the dominant market factor today. This is extremely unusual for the late June/July/August period to have any trade focus other than the weather. Today, though, we are embarking on a new period in agriculture, especially those products that are export dependent (like soybeans and wheat).

Weather the next three days is forecast relatively dry, but the seven-day forecast still calls for above normal precip in the central Corn Belt including the states of North Dakota, Minnesota, Iowa, Nebraska, Wisconsin, Illinois, Indiana, Kentucky, and Tennessee. Surrounding states are forecast to have normal precip, with below normal precip segmented to the far west, Texas, Louisiana, and Arkansas. The 8-14 day precip forecast is drier today, with above normal rainfall pushed down to the southeast, and the northern two-thirds of the Corn Belt forecast to have below normal precip now in today’s runs. Temps will be above normal through the entire 14-day forecast, which is basically the same forecast as the past month or two including most of May and June. That is a good forecast for these growing months as we are just getting the crop started then, and warming up quickly is a good thing. But if the heat persists into July and August, it could present some problems (especially for southern states).

Crop progress shows we now have a crop ahead of average and in better than average condition. Corn is 2% ahead of normal silking at 5%, with conditions down 1% this week to 77% G/E, above last year’s 67%. The Pro Ag corn yield model is up about 0.5 bu/acre to 176.5 bu, above ‘trend’ at 171.5 and USDA at 174 bu. Soybeans are 95% emerged (6% ahead) and 12% blooming (7% ahead), with conditions at 73% G/E (unchanged) this week vs. 66% last year. Soybean yield model results expanded 0.29 bu/acre to 48.66 bu, above ‘trend’ at 47.9 bu and USDA’s 48.5 bu/acre estimate.

Sorghum is 95% planted (4% ahead) and 20% headed (1% behind), with conditions up 2% this week to 56% rated G/E (but still below last year’s 65% rating). Sunflowers are 91% planted (3% ahead), while winter wheat is 41% harvested (8% ahead of normal). Winter wheat conditions dropped 2% this week to 37% rated G/E, which dropped the yield model 0.19 bu/acre to around 48 bu/acre. This will be a below average winter wheat crop, which joins cotton and sorghum so far in the category of a below average 2018 crop.

HRS wheat is 34% headed (7% ahead of average), with conditions down 1% this week to 77% rated G/E, well above last year’s 40% rating. Barley is 28% headed (4% behind average), with conditions down 1% this week to 83% rated G/E (vs. 60% last year). Oats is 67% headed (1% behind), with conditions up 2% this week to 72% rated G/E (vs. only 54% last year).

Moisture levels improved last week significantly, with topsoil up 8% to 74% rated adequate/surplus (vs. 69% last year). Subsoil jumped 4% to 71% rated adequate/surplus (vs. 75% last year). That’s a good sign going into July and August, the most critical time periods of the year for weather in corn and soybeans.

This is an unusual summer trading season, indeed, as the past month has been all about politics, government policy, and trade rather than weather. That is rare, as in the past 38 years straight, weather has been the big dog determining market prices in June, July, and August (and much of the rest of the year, too). A tariff is different than an embargo; an embargo stops exports at any price. A tariff is more like a tax on exports, where both sellers and buyers end up paying part of it and the money goes to the government collecting the tariff. But trade still ensues if the tariff is paid.

Interestingly, USDA Secretary Perdue yesterday wrote an op-ed in the USA Today newspaper that Trump would have farmers’ backs in this trade dispute (you can reference it through Google, Yahoo, or on Trump’s twitter account). The headline read “Donald Trump will Protect American Farmers from China’s Trade Retaliation.” In the article, He states “…the president has instructed me to craft a strategy to support our farmers in the face of retaliatory tariffs. At the U.S. Department of Agriculture, we have tools at our disposal to support farmers faced with losses that might occur due to downturns in commodities markets. To this point, we have not unveiled our strategy, as it is not good practice to open our playbook while the opposing team is watching.”

I don’t know exactly what that means (by design it appears), but if the government would take the tariff on imported Chinese products, and pay some of the money (on $250 billion at 10% that’s $25 billion/year; at 25% that’s $62.5 billion/year) to farmers to compensate for the price loss of losing exports, that would be great and well-justified! These numbers dwarf the payments currently made to farmers under the Farm Bill, but obviously should be based on the recent dramatic price loss and impact of the trade disputes (especially China).

As a Republican, Trump should be concerned about the government getting the tariff money and using it to expand government. Especially when his goal is to reduce government and all tariffs in the world (not increase them). Giving the tariff money to the businesses who are adversely affected might be fairer than letting the government spend the money, especially if this dispute lasts a long time. Otherwise, the trade dispute likely will bankrupt some farmers, and that wouldn’t be right to let them bear the burden to protect our intellectual property rights in other industries (for high tech exports).

Ray Grabanski can be reached at raygrabanski@progressiveag.com.