The week in review
The recent winter storm dropped upwards of 18 inches of snow in Central North Dakota, with surrounding areas receiving 4-6 inches. Much of Iowa, Nebraska, South Dakota, and North Dakota saw temperatures below 32 degrees. Trade is still trying to determine the impact the winter weather had on the U.S. corn and soybean crops. The USDA stated they will resurvey producers in North Dakota and Minnesota ahead of the November supply and demand report to try and get a better idea of the effects. The blizzard conditions in the Dakota’s alone has been estimated to have cut corn production by 100 to 200 million bushels. Soybean losses there have been estimated around 40-60 million bushels. The killing frost across large portions of the northern growing areas has also taken a toll on immature crops but the extent remains unknown and will likely be debated for months.
On October 10th, the USDA increased their yield forecast for corn and decreased yield estimate for soybeans. History shows that when yield changes are made from the September to October crop reports, the alterations typically follow into the November reports as well. Given the winter weather that hit the northern growing areas recently, expectations are to see corn yield forecasts go against the trend and decrease in November. Soybean yield decreases seen in October have been followed by further decreases in November each of the past 6 years and are expected again next month.
China confirmed the “Phase One” version of the trade deal which was reached last week. U.S. Treasury Secretary, Mnuchin, stated substantial progress has been made in negotiations. China has agreed to remove tariffs on agriculture goods and to purchase more agricultural products amounting to 40 to 50 billion dollars. They also stated that buying will be based on domestic demand and market principals which added more uncertainty. China stated they want to see tariffs reduced before they agree to purchase more goods. President Trump stated he likely wouldn’t sign any trade deal until he meets with the Chinese President. However, the partial trade deal is in the process of being formalized. Both presidents are expected to meet in Chile at a summit in mid-November.
Many believe that soybean demand will not rebound to pre-trade war levels due to the spread of African swine fever, but the disease has opened the door for other opportunities. The price of pork in China is over 80 percent higher than a year ago and accounts for 70 percent of China’s total meat consumption.
Last month, 30,000 metric tons of frozen pork was auctioned from China’s reserves. So far this year, China has imported more than 1.3 million tons of pork which is a 44 percent increase from the prior year.
A proposal for a new formula for biofuel demand was released by the EPA on October 15th. The outline of the proposed rule is to reallocate bio-fuel requirements for the next two years instead of offsetting lost demand from 2016 to 2018.
Calculations on demand are based on recommended exemptions instead of the large number of gallons that are actually waived. According to estimates, this will increase demand by 770 million gallons instead of the anticipated 1.4 billion gallons a year. The proposal was met with heavy opposition by corn and ethanol advocates as they feel the plan only offsets a portion of the lost demand and leaves loopholes for further demand losses.
A hearing will be held on the proposal on October 30th, with a 30-day comment period to follow.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.