Evening Report

Posted on Fri, 12/06/2019 - 14:27

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Pro Farmer newsletter now available!... The U.S./China trade war continues to dominate headlines, with China indicating it plans to waive tariffs on some soybeans and pork from the U.S. and the Dec. 15 deadline for yet another tranche of U.S. tariffs on Chinese goods looming. Harvest continues its slow advance, with a lot corn and soybeans still left in the field. And this week’s issue includes a longer-term outlook for the wheat market. Find more on these topics and many others in this week's newsletter, which you can access here.

 

Just tweaks to carryover expected next week… USDA will not update its corn and soybean crop estimates in the Dec. 10 crop reports, but there will be fresh usage and ending stocks projections. Attention will be on any changes to global production and demand forecasts. Look for coverage on our website and via e-mail soon after the 11:00 a.m. CT release on Tuesday.  The following are expectations based on a Reuters survey of analysts (Bloomberg for cotton).

Expectations for
U.S. Carryover

Corn – billion bushels

 

2019-20

Average est.

1.919

Range

1.890-1.960

USDA November

1.910

 

Soybeans – million bushels

Marketing year

2019-20

Average est.

476

Range

455-500

USDA November

475

 

Wheat – billion bushels

Marketing year

2019-20

Average est.

1.010

Range

0.989-1.025

USDA November

1.014

 

Cotton – million bales

Marketing year

2019-20

Average est.*

6.01

Range

5.70-6.90

USDA November

6.10

 

Expectations for
Global Carryover

Corn – MMT

 

2019-20

Average est.

295.52

Range

292.00-298.20

USDA November

295.96

 

Soybeans – MMT

 

2019-20

Average est.

95.46

Range

93.90-96.80

USDA November

95.42

 

Wheat – MMT

 

2018-19

Average est.

286.18

Range

283.90-288.50

USDA November

288.28

 

Cotton – million bales

 

2018-19

Average est. *

80.62

Range*

80.10-81.30

USDA November

80.80


 

*Based on the results of a survey by Bloomberg news.

 

StatsCan lowers wheat, corn and canola crop estimates… Statistics Canada (StatsCan) estimates the Canadian wheat crop at 32.35 million metric tons (MMT), up 0.5% from last year but smaller than the 32.6 MMT analysts expected. This is also smaller than the 32.49 MMT crop estimate the agency had in September. But questions remain about the quality of the crop after this year’s weather.

StatsCan estimated the country’s 2019 canola crop at 18.65 MMT, down 8.3% from last year. This was also near the lower end of trade expectations and down from the agency’s September estimate of 19.36 MMT.

The Canadian corn crop likely totaled 13.40 MMT, according to StatsCan, a decline from its September estimate and at the low end of trade expectations. This would be a 3.5% decline from the 2018 crop.

MarketsFarm Editor Mike Jubinville points out that the 2019 growing season was a difficult one from start to finish and crops remain in the field, meaning there’s a lot of uncertainty in this production report. Nevertheless, he notes that the history would point toward the ultimate canola/wheat numbers topping what was reported today.

 

Reuters: EPA may use partial hardship waivers to hold corn-based ethanol blending above 15 billion gallons... President Donald Trump reportedly told EPA Administrator Andrew Wheeler that the corn-based ethanol mandate must be set at 15 billion gallons after waivers are granted to small refineries. And Andrew Wheeler reportedly told biofuel groups his agency is working to address the concerns about blending rules from the farm/biofuel sector. Three sources cited by Reuters say the administration plans to rely more on partial exemptions to ethanol blending requirements to keep corn-based ethanol at 15 billion gallons. EPA was expected to send its proposed 2020 blending mandates to the Office of Management and Budget for approval by week’s end.

 

More vague talk China will waive tariffs on soybeans, pork, but Phase 1 hurdles remain… China’s finance ministry appeared to confirm reports that China would waive import tariffs on shipments of  some pork, soybean and other goods from the United States when it said tariff waivers were based on applications by individual companies, citing a decision by the country’s cabinet. But details were scarce—with some big questions on amounts, timeframes, what “other goods,” etc. unanswered. That resulted in traders scaling back early gains in commodities like soybeans and hogs.

And hurdles to a Phase 1 agreement remain the same, with the major one being which tariffs to roll back and the size of U.S. farm purchases China is willing to make and which “off-ramps” China will be allowed relative to enforcing any purchase commitments. President Donald Trump is asking China to buy $40 billion to $50 billion of farm goods a year, which is significantly higher than the $8.6 billion the country bought last year and well above the level China bought before the trade war.

The administration is also demanding that China publicly announce its purchasing plans and say that they wouldn’t depend on market conditions or China’s trade obligations, sources told the Wall Street Journal. Beijing is reluctant to make that pledge because it might have to divert purchases from other trading partners that are likely to object.

Market observers note amazement that officials from a market-oriented country like the U.S. are insisting a Communist country like China must buy a designated value of products irrespective of supply and demand.  

 

Impressive jobs growth in November… U.S. employers added 266,000 non-farm payrolls in November, shattering expectations for jobs growth around 180,000 and a dramatic improvement from October, the Bureau of Labor and Statistics (BLS) reported this morning. The conclusion of the GM strike brought back manufacturing jobs, but BLS says notable gains also occurred in health care and in professional and technical services. Adding to the positive employment situation, BLS revised September payrolls 13,000 jobs higher to 193,000 and it raised October payrolls by 28,000 to 156,000. The impressive showing flies in the face of those warning about a slowing economy. The data could also embolden the Trump administration in trade negotiations with China.

The unemployment rate ticked down to 3.5%, whereas most analysts expected that rate to hold steady with October at 3.6%. This matches the lowest jobless rate since 1969. The labor force participation rate edged 0.1 point lower to 63.2%.

Also encouraging, average hourly earnings for private non-farm payrolls climbed 7 cents to $28.29. Wage growth over the past year is still only 3.1%, despite near full employment. Employers have been using non-wage actions to attract and retain workers.

 

Farm groups challenge California’s animal housing standards in court…The National Pork Producers Council (NPPC) and American Farm Bureau Federation (AFBF) filed a legal challenge to California’s Proposition 12, which imposes animal housing standards. The state’s law would force hog farmers who want to sell pork to the state that makes up around 15% of the U.S. pork market to switch to alternative housing systems, and that comes with a big price tag.

The new rules slated to take effect Jan. 1, 2022 would prohibit the sale of pork not produced via California’s “highly prescriptive standards” under which only 1% of U.S. pork production would qualify, according to a press release from NPPC and AFBF. The two groups are asking the court to strike Proposition 12, which also sets minimum space requirements for veal calves and egg-laying hens, as invalid under the Commerce Clause of the Constitution.

“Proposition 12 revolves around a set of arbitrary standards that lack any scientific, technical or agricultural basis, and will only serve to inflict further harm on U.S. hog farmers," said Jen Sorenson, NPPC vice president. “U.S. pork producers are already fighting to expand market opportunities overseas. We shouldn't have to fight to preserve our domestic market, too,” she adds.

“This law was sold to California voters as a solution to improve animal welfare and food safety, but it has nothing to do with food safety, and many animals will suffer more injury and illness under its arbitrary rules," said AFBF General Counsel Ellen Steen. "The best way to protect animal well-being is to allow farmers to make farm-specific and animal-specific decisions on animal care. Prop 12 will deny them that ability while driving up their costs. The hardest hit will be family farms, especially smaller independent farms,” she continues.

 

Corn, bean insurance claim deadline… The end of the insurance period for corn and soybeans is Dec 10. If you think you might have a yield or revenue claim on your 2019 crops, contact your crop insurance agent.

 

AFBF President Zippy DuVall interview… Chip Flory spoke with American Farm Bureau Federation President Zippy DuVall about the U.S./Japan accord, USMCA, Section 232 tariffs and China on AgriTalk yesterday. Listen to that conversation.

 

EPA sends final rule on WOTUS to White House… The final rule revising the definition of waters of the United States (WOTUS) has been sent forward to the White House for review. EPA published the proposed rule Feb. 14, 2019, and said the final rule was developed “after reviewing public comments on the proposal.” This marks the second step of the two-step process to repeal and revise the WOTUS rule issued by the Obama administration in 2015. The first step “repealed the 2015 definition of Waters of the United States and recodified the preexisting regulations as interpreted by the Supreme Court and implemented through agency guidance,” according to the White House Office of Information and Regulatory Affairs. “An alternative to the second step rule is to retain the recodified prior regime finalized in the first step of the rulemaking.” The agency is targeting January 2020 to release the final WOTUS rule.

 

OPEC agrees to production cuts… Led by Saudi Arabia, OPEC agreed in principle to cut production by an additional 500,000 barrels per day through the end of March 2020, according to reports. But the group must still convince a faction of its non-OPEC allies, including Russia, in a bid to prop up oil prices.

 

Market Watch: New forecasts from Doane economists through June… Our Market Watch table features monthly and quarterly price outlooks along with weekly prices for a variety of ag markets. Take a look.