Evening Report | Oct. 4, 2021

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Soybean producers: Increase 2021-crop sales… November soybean futures violated the June lows today, which opens additional near-term downside risk. With the unexpectedly big increase in Sept. 1 stocks providing more supply-side cushion for 2021-22 and yield reports coming in generally strong, today’s price action warrants additional sales. We advise hedgers and cash-only marketers to sell another 10% of 2021-crop production to get to 50% priced in the cash market. Hedgers also hold a 10% hedge in November soybeans futures.

Corn harvest advancing rapidly… Corn harvest advanced 11 percentage points over the past week to 29% complete, which was right in line with expectations and seven percentage points ahead of the five-year average for this point in the season. The report showed 88% of the crop was mature as of Sunday, which compares to 77% on average to kick off October.

USDA once again rated 59% of the crop “good” or “excellent,” which is three percentage points shy of last year at this point.

Soybean harvest even more aggressive than anticipated… USDA reports 86% of the U.S. soybean crop was dropping leaves as of Oct. 3, and 34% of it had been harvested, which is six and eight points ahead of the respective five-year average for this point in the season. The 18-point week-to-week advance in harvest was two points quicker than analysts surveyed by Reuters anticipated on average.

USDA continues to rate 58% of the bean crop “good” to “excellent” (GE), though that did mask a one-point increase in the “excellent” category.

Rain slows cotton harvest and weighs on crop ratings… Seventy percent of the cotton crop has bolls open and is thus vulnerable to late-season quality damage, including 64% of the Texas crop. Harvest advanced just two percentage points to 13% the week ended Oct. 3, with rainy weather keeping progress minimal. Last year at this time, 19% of the crop had been harvested.

Soggy weather resulted in a three-point slide in the amount of top-rated cotton to 62%. But that’s still well ahead of 40% G/E last year at this time.

Winter wheat seeding nears half complete… U.S. winter wheat harvest advanced 13 percentage points over the past week to 47% complete, according to USDA. That was two points shy of expectations but still a point more advanced than the five-year average. In top-producing Kansas, 42% of the crop has been seeded vs. the usual 41%. Today’s update shows 19% of the crop had emerged as of Sunday, which lags the five-year average by a point.

NWS: Wetter October outlook for the Midwest and Plains… The National Weather Service (NWS) revised its one-month temperature and precipitation outlooks at the start of October, including some significant changes on the precipitation front. NWS now gives above-normal odds for wet weather from eastern North Dakota through Wisconsin southward from Texas to Florida. Previously, NWS gave elevated odds for wet conditions in the far eastern Corn Belt as well as Minnesota and Wisconsin.

This could slow harvest efforts in the Midwest and add to concerns with foliar disease in the eastern Corn Belt, though harvest is off to a quick start. The moisture would be welcome for winter wheat producing areas, but more moisture could lead to quality issues with the southern cotton crop. There are now equal chances for normal, below-normal and above-normal precipitation in the far eastern Corn Belt.

The October temperature outlook is still quite warm for the bulk of the country, through the area with the highest odds of elevated temperatures shifts a bit northward to encompass Minnesota, much of Iowa, Wisconsin, Michigan and northern Illinois. Odds for warm temperatures also now include states along the Gulf, but elevated odds for high temps this month no longer include the western third of the country. Click here to view the maps.

Brazilian soybean planting just getting started… Brazilian producers have planted 4% of their intended 2021-22 soybean crop acres, which compares to 2% planted last year at this time, reports AgRural. The consultancy said planting should pick up early this month, though it noted irregular rains in top-producing Mato Grosso and Parana.

Separately, Safras & Mercado also estimated 4% of the soybean crop had been planted vs. 1.5% planted last year at this time.

OPEC+ sticks with gradual increases in production… OPEC+ members today opted to stick with their current plan regarding oil production levels rather than agreeing to boost supplies, as encouraged by Biden administration officials and others. In July, members of the cartel agreed to boost monthly production by 400,000 barrels per day until at least April 2022 to phase out 5.8 million bpd of existing production cuts. Today’s decision adds to inflationary concerns. Crude oil futures shot to their highest level in nearly seven years in response.

Biden trade policy with China: Live up to Phase 1 commitments, stop unfair trade practices… Anyone thinking (or wishing) for a real thaw in U.S./China trade relations had their hopes dashed this morning when U.S. Trade Representative Katherine Tai offered the Biden administration’s strongest signal yet that the U.S. combative economic approach toward China would continue. Some highlights:

• President Joe Biden will not immediately lift tariffs on Chinese goods, despite some errant conjecture to the contrary.
• The Biden administration said it would re-establish an expired process that gives some companies a reprieve by excluding them from the tariffs. Trade officials would make those decisions based on the priorities of the administration, officials said, without elaborating.
• The Biden administration will hold Beijing accountable for trade commitments agreed to during the Trump administration. They are lagging some in ag product purchases and a lot in other, primarily energy, product buys. China is on pace to fall short of its 2021 purchasing commitments by more than 30%, after falling short by more than 40% last year, according to Chad P. Bown, a senior fellow at the Peterson Institute for International Economics, who tracks the purchases. Tai revealed she would begin talking with her Chinese counterparts in the coming days about the country’s failure to honor the purchase commitments.
• China still maintains tariffs on 58.3% of its exports from the U.S.; the U.S. imposes tariffs on 66.4% of the products it brings in from China, according to Bown.
• China disputes it fell short of purchase commitments, noting the Covid pandemic created unique circumstances.
• Biden officials will press China on the issue of subsidies it offers to give its industries a competitive edge. Tai highlighted how some of Beijing’s unfair practices have affected U.S. workers and said the U.S. would continue working with allies to counter them. “We will use the full range of tools (Section 301 of U.S. trade law, for example) we have and develop new tools as needed to defend American economic interests from harmful policies and practices,” she said.
• Biden administration officials acknowledged that talks might not persuade China to abandon its increasingly authoritarian, state-centered approach. Instead, officials noted, the administration’s primary emphasis will be on building the competitiveness of the U.S. economy, working with allies and diversifying markets to limit the impact of Beijing’s harmful trade practices. Last week, the U.S. and Europe announced a new trade cooperation that was partly aimed at countering China’s authoritarian practices.
• Senior administration officials did not rule out the possibility of imposing further tariffs on China if coming talks did not produce desired results, warning Beijing that they would use all available tools to defend the U.S. from state-directed industrial policies that harm its workers.
• Asked if they would consider additional tariffs on China, officials said the Biden administration would not be taking any tools off the table. The administration planned to use the enforcement mechanism established in the Phase 1 trade deal, they said, which would allow the U.S. to resort to further tariffs if consultations were unsuccessful.

Bottom line: Even though Biden criticized the Trump administration’s aggressive trade policy approach to China, his White House will continue trying to counter China’s economic threats with trade barriers and other punitive measures.

Tai said that her office has conducted a comprehensive review of the Phase 1 trade agreement the U.S. reached with China last year during the Trump administration. She is expected to have a telephone call with her Chinese counterpart, Vice Premier Liu He, to discuss China’s performance.

Tai believes that decoupling with China is not a “realistic outcome in terms of our global economy.” Rather, Washington will pursue a course of “durable co-existence” with Beijing, she said. The Biden administration is also looking into incentives to encourage companies to “buy Americans up and down the supply chain,” she said.

As noted, the U.S. will not pursue Phase 2 negotiations with China on deeper structural issues such as massive subsidies to vital industries that skew global markets, because Beijing is “doubling down on its authoritarian state-centric approach,” senior administration officials said during a press call on Sunday.

Vilsack comments on China… The Biden administration also will press in trade talks for China to address 7 of 57 commitments on structural trade barriers that remain unresolved, including easier and faster approval of biotechnology traits in U.S. agricultural products, USDA Secretary Tom Vilsack said in a phone call with reporters. Farmers “can expect that the United States is going to encourage and strongly encourage the Chinese to live up to the responsibilities that they agreed upon” in Phase 1 trade deal with President Donald Trump, Vilsack said. “They’re still about $5 billion short” on purchase commitments China made under the deal, “And that I think is important,” Vilsack added.

USDA announces another $100 million in funding to expand meat and poultry processing… Today, USDA announced it would provide another $100 million in funding from the American Rescue Plan Act as part of its ongoing efforts to “address food systems challenges arising from the pandemic as well as going back decades.” USDA details: “The funding would leverage hundreds of millions more in lending through community and private sector lenders to expand meat and poultry processing capacity and finance other food supply chain infrastructure. These investments will help deliver more opportunities and fairer prices for farmers and address bottlenecks in the food supply chain revealed and exacerbated by the pandemic.”

In the related press release, Vilsack again emphasized the Biden administration is working to address concentration in the meat-processing industry and to shift the “balance of power back to the communities and small businesses of America.”  The administration previously (in July) announced a $500 million investment to expand meat and poultry processing capacity.

Chart Trend… The weekly chart for soybeans has turned down. Find more updates to our short-term, intermediate- and long-term trends for commodity and key outside markets here.

DC Signal to Noise podcast… AgriTalk Host Chip Flory and Pro Farmer Policy Analyst Jim Wiesemeyer discuss efforts to keep ASF out of the country, Congress struggling to get the votes to pass both infrastructure bills, and more. Listen here.