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Views and opinions: Mexico, Japan trade talks looking good next to others
 

 

Quarterly stocks numbers, harvest progress and trade developments dominated much of the market conversation last week. After what appeared to be a move by China to find the good graces of its global trade partners the week before, a much different attitude emerged over the weekend.

On the evening of Sept. 22, leaders announced they would not come to the U.S. for trade talks until after the midterm elections, claiming the increase in pressure out of Washington was behind the decision. This was seen as an incredible blow to the administration, as many outside observers feel some rural voters could have their votes decided by a trade solution – or lack thereof.

In addition to the announcement, the Chinese government purchased a large ad which ran in the Des Moines Register over that weekend. The ad claimed the Trump administration was “selling out farmers” and causing great economic harm in the Farm Belt. In response, the Trump administration claimed this was meddling in the upcoming election, stating it would not go unpunished.

Rhetoric was spewed between the U.S. and Canada as well. Little progress has been made when it comes to dispute resolution and dairy sticking points in the bilateral agreement there. As a result, Trump refused the Canadian prime minister’s invitation for a meeting and stated that without an agreement, he would be forced to tax car imports and other goods.

At this point both sides remain willing to hold off on further negotiations, hoping perhaps negotiating without a deadline would relieve some pressure.

While it appeared we made zero progress when it comes to Chinese and Canadian trade relations, we did see a bright spot in the bilateral U.S./Mexico trade announcement, as well as what appears to be cordial trade discussions beginning with our Japanese counterparts.

Though the Japanese government was quick to say the U.S. would not receive any better treatment than its Trans-Pacific Partnership allies, many industry groups welcome the open discussion, with the idea that any additional access to the Japanese market is a bonus.

In other news, the USDA released its updated quarterly stocks figures midday Friday. These numbers hold greater importance this month for corn and soybeans because they will be used as final old-crop ending stocks numbers, giving us an indication as to whether USDA supply and demand estimates put together each month have been accurate.

Based on Friday’s numbers, the USDA had overestimated feed demand throughout the year, as corn ending stocks came in 130 million bushels higher than traders had anticipated ahead of the report.

Of these numbers, it is interesting to note that while on-farm and commercial stocks are lower than a year ago, the amount of movement off-farm is greater than one would anticipate. This would help to explain some of the basis trouble seen through the Corn Belt in the month of September.

The USDA also came in higher than expected when it came to soybean carryout. Since we have a pretty good idea of soybean usage throughout the year thanks to export sales figures released weekly and crush numbers released each month, the USDA actually increased last year’s production by 19 million bushels.

It credited a drop in residual usage as the secondary reason for the 42 million-bushel increase over initial September carryout figures. It is interesting to note that while stocks increased across the board when it comes to soybeans, the U.S. farmer is holding a significant amount of beans as we work our way into harvest.

Wheat numbers came in slightly higher than expected, as well as production was raised slightly.

Overall the increase in stocks figures will result in an increase in old-crop carryover and subsequent new-crop carry-in for both corn and beans. Without an equal or larger increase in new-crop demand or reduction in production estimates, new-crop carryout will increase in the October World Agriculture Supply and Demand Estimates report.

Harvest pace is ahead of the five-year average by 5 percent for corn and 6 percent for beans, with some areas looking to wrap up in the week ahead while others are still waiting to get started. We are getting a better picture when it comes to yields.

At this point it appears beans are as good if not better than the latest USDA expectations, while corn reports are solid, but more in line with last year’s production versus the large increase currently expected by the USDA.

Cash markets, specifically basis moves, will likely be a better indicator of what is actually taking place across the countryside than anything these next few weeks.

 

Angie Setzer is the Vice President of Grain for Citizens Elevator in Charlotte, Mich. Her market commentary can be found on Twitter by @GoddessofGrain and online at www.citizenselevator.com

The opinions and views in this commentary are solely those of Angie Setzer. Data used for this commentary obtained from various sources are believed to be accurate.

10/4/2018