This Week in Agriculture:
A Mixed Bag of Information from the Week that Was: February 1st, 2019
· The reopening of the government and Chinese trade conversations dominated headlines this week. With the former playing catch up and the latter loaded with fodder for both buyers and sellers.
· A short-term resolution to the government shutdown was announced late last Friday as lawmakers put aside their differences, funding the government through the 15th of February. The funding allowed offices closed for well over a month to reopen, this included the USDA, CFTC and others, also allowing for those employees working without pay throughout the shutdown to receive those delayed paychecks.
· With funding restored the USDA fully reopened Monday morning, and announced when the reports that had been delayed during the shutdown would be released. The much-anticipated January figures, quarterly stocks, wheat plantings, final crop production and WASDE will be released on February 8th. In addition to the updated release dates for the monthly reports we also learned that it is going to take around 3 weeks to get up to date on export sales and CFTC data.
· The USDA and CFTC are releasing December data over the next 3 weeks while they compile the total data through January and into the first 3 weeks of February, hoping to be caught up by February 22nd. This is if lawmakers can come up with a funding agreement that satisfies the Trump administration’s request for border wall funding, as a failure to find a compromise by February 15th would likely result in another shutdown.
· This week’s export sales report was from the week of December 20th and came in better than what was expected in pre-report estimates released that week ahead of the shutdown. This obviously wasn’t much of a surprise to trade though as grain movement on the export side of things can be monitored by freight and basis changes after the fact.
· In addition to the reopening of the government this week traders monitored Chinese trade talks Wednesday and Thursday as high level representatives for both countries sat down in Washington DC.
· While news from the talks was relatively quiet Wednesday, rumors, confirmation and revisions dominated the news cycle after the close on Thursday. When doors opened at the end of the day a letter from the Chinese delegation was delivered to the Trump administration and read. Excitement ensued when talk of China agreeing to purchase 5 mmt of soybeans a day was announced.
· At first many felt this headline was simply a typo, but then it was confirmed several times as true. However, China purchasing 5 mmt a day would in fact wipe out our carryout in a little over 5 days, bringing the reality of this claim into question. After a state dinner Thursday evening a correction was issued, claiming an error in translation. The letter in fact referenced a 5 mmt purchase “today” not “per day” definitely changing the overall message as a whole.
· This additional 5 mmt purchase is likely to take place over the coming days and weeks and will take total Chinese purchases this crop year up to 10 mmt, in line with promises made shortly after the trade truce was announced. While any purchases are good, especially in this current market structure, 10 mmt is around 15 mmt (551 mbu) below what China had purchased from the US last marketing year.
· We did hear talk that China would buy 300 million gallons of ethanol from the US as part of the trade package. This would be huge for the industry as we saw this week’s production numbers show a 19k/barrel cut in daily ethanol production but stocks still ballooned to near record high levels.
· The US is not the only one holding high level trade talks with China. Brazil made it very clear they are looking to capture more of China’s agriculture imports ahead of this week’s sit-down that’s been 4 years in the making. The Brazilian government also announced plans to have BR-163—the often talked about road that carries much of Brazil’s ag exports from field to export terminals—fully paved in 2019.