Raelynn's Comments 07/27/18 9:00:10 AM
July 26, 2018
We’ve had a couple headlines come out in the news the last couple days that have stirred the market up. One being the aid package for farmers and the other the positive discussions between the EU and US regarding the trade war. Here is what we know so far.
$12 Billion Aid Package
On Tuesday, the Trump administration announced an aid package for farmers with three different programs that totals $12 billion. Here are the three pieces to the package:
- Direct payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs.
- Food distribution and purchase program for produce that includes fruits, nuts, rice, legumes, beef, pork, and milk. The surplus of goods will be distributed to food banks and other nutritional programs.
- Promotional program that targets new export markets as well as private sector markets.
Starting in September farmers will be able to sign up for direct payment assistance with the CCC, but we are still waiting on details of the program. The only information currently available is that the compensation will be based on the size of the producer’s upcoming harvest.
EU to Purchase US Soybeans
The trade war with our allies has been brewing for months, and it looked like it was going to get worse with the threat from the US to impose a 25% tariff on automobiles coming from the European nations. However, yesterday an agreement was made between President Trump and Jean-Claude Juncker, the European Commission President, to halt any new tariffs. Neither agreed to suspend the current tariffs in place, but it was put as a priority to work on a bilateral trade deal. A joint statement was released saying they will “work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” In the meantime, the EU agreed to buy more soybeans and liquefied natural gas. However, the pledge to buy more US soybeans was more of an agreement not to hinder the current market. The EU is currently buying more soybeans due to attractive US prices, and this was an agreement not to interfere with the new buying. They didn’t agree to no additional tariffs in the future, but it puts a halt on them for now. Any agreements made between Juncker and Trump will need to be approved by the leaders of the EU nations. Long term, those involved in the negotiations will work on reducing tariffs on industrial goods, not automobiles or agricultural products. This group will report their results in late November, after the midterm elections.
So, what to take from this news. The aid package shows signs we’re not going to see any relief from the current tariffs anytime soon, but the progress with the EU gives some hope. The problem is that the biggest issue with bean exports is China. I hate to be a broken record with China, but the EU is the second largest importer of beans by a large margin to China. The EU’s 15.3 million metric tons is dwarfed by China’s 95 million. This gives a little support to the market, but this is more likely a small rally without any long-term benefits. Something to think about is the upcoming USDA supply and demand report on August 10th. We already have high ending stocks with the same yields they’ve been predicting all summer. Let’s make a couple assumptions that they will increase the export demand with the truce with the EU. But will it be enough to offset an increase in yield? Let’s say they keep the yield the same and increase exports. Will it be enough of an increase to bring down ending stocks to equate to more profitable levels? This is yet to be seen, but it feels like we just put a little bit of good news out there with no real change in our current situation.
After reading all of this, I’m guessing you can predict my marketing suggestions. Get rid of your old crop. Take advantage of the rally we’ve seen this last week because we’re running out of time to get rid of it. Basis is widening, trucks are getting busy so you might as well get on their list. As for new crop, start selling what needs to go out of the field, but hold off on what you can get in a bin. Historically this is not the time to sell new crop if you can store it. But you are now marketing in a world with tariffs and that creates a lot of unknown. We always resort to the question about what is profitable for your operation so keep that in mind when doing your marketing.