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U.S./China trade deal brings optimism

By Staff | Dec 26, 2019

Corn harvest pace crawled forward at 3 percent the prior week to 92 percent complete.

Wisconsin and Michigan have over 25 percent left to complete and North Dakota over 50 percent to complete.

This leaves around 600 million bushels of corn unharvested and questions on if or when it will be harvested. With winter weather systems already hampering the far northern Corn Belt, harvesting the remainder of those acres and potential yield loss could be drug out until spring.

South American weather remains in the sight of trade. Latest forecasts show little changes ahead for dry areas of Argentina. Light rains are forecasted in the near term, but conditions overall are to remain drier than normal. Brazil forecasts look to remain favorable. Widespread rains have fallen recently and continue to show adequate coverage through the 10-day period. Even though most of the Brazilian soybean crop was planted, a majority of it happened in October. This has some analysts wondering how the delayed planting will effect harvest, yield, and the second crop rotation.

The WASDE report was uneventful. Ending stocks and production for corn and soybeans were unchanged, as well as production for Brazil and Argentina for both corn and soybeans. World ending stocks saw the most change, with wheat at 289.5 million metric tons (mmt), corn at 300.5 mmt and soybeans 96.4 mmt which were all higher. An increase to China’s corn crop was the primary reason for the 6 mmt increase on corn world stocks.

Producer selling of corn remains light as it feels most are hoping for a bullish acreage/yield adjustment on the January supply and demand report. Traders are looking at possible demand effects from low-test weight from late maturing corn, with reported test weights ranging from 48-53 pounds/bushel. Ethanol plants can experience poorer yield or conversion from low-test weight from lower starch content. This could potentially add to usage as a 10 percent reduction in conversion would add 100 million bushels of demand.

China had bought at least 5 cargoes of soybeans from the U.S. early in the week, with rumors of 2-4 cargoes from the Gulf and 6-8 from the Pacific Northwest for January/February shipment. This was after China offered new tariff free waivers on a million tonnes of U.S. shipments after filling the previous 10 mmt waivers.

Later in the week, the USDA confirmed that exporters sold 26.6 million bushels of soybeans and China bought 21.5 million of those bushels. Analysts believe these purchases will help fill the gap until Brazil’s new crop supplies are available again.

The U.S.-Mexico-Canada agreement could be up for final ratification as early as next week. The agreement will provide agriculture with $50 billion a year in non-tariff trade across the border and preserve the $1 trillion continental trade agreement. The USMCA expects to create $68 billion in new activity in the economy and over time create 176,000 new jobs.

A trade deal has been put together to end the trade war between the U.S. and China. This is the Phase One trade deal and awaits both sides to sign it. It would delay the new round of tariffs on December 15th, reduce current tariffs to some degree, and in 2020 China would agree to buy $50 billion in U.S. goods because of the suspended tariffs. The rest of the details remain to be released.

For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at kguse@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Kristi Guse. 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.

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