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China Announces Tariff Increases On US Agricultural Products
DR. AARON SMITH
KNOXVILLE, TENN.
One week ago the US and China intensified the ongoing trade war. The US announced increased tariffs of 5 percent on $300 billion worth of Chinese imports as of September 1. In response, China announced that it will impose a tariff increase on U.S. agricultural (and other) products, including another 5 percent tariff on U.S. soybeans starting Sept. 1 and an additional 10 percent tariff on wheat, corn, and sorghum starting Dec. 15. China will also add an additional 10 percent tariff on U.S. beef and pork as of Sept. 1. The Chinese response led the US administration to propose an additional 5 percent tariff increase on $250 billion of Chinese imports as of October 1. This week it appears tensions have eased with calls for additional negotiations from both sides. Unfortunately, agriculture commodity prices will continue to be adversely affected, as a resolution still appears to be a long ways away. As of Friday, it has now been 421 days since the start of the China-US trade war.
On August 23, the USDA released a paper on how the 2019 county MFP payment rates were calculated. In short, 2015-17 average county and crop level production was multiplied by a crop specific commodity payment rate – determined by the estimated damage to prices due to trade disputes – and a weighted average was computed. Commodity payment rates were: $2.05 a bushel for soybeans; 26 cents a pound for cotton; 14 cents a bushel for corn; 41 cents a bushel for wheat; and $1.69 a bushel for sorghum (to be clear producers will not be paid based on these commodity specific payment rates, they will be paid by the final county rate for all planted acres of eligible commodities. The full USDA report is available at: https://www.usda.gov/oce/trade/USDA_Trade_Methodology_Report_2019.pdf
For example, a county with: 20,000 acres of corn at 180 bushels an acre x $0.14/bu equals $504,000; and 10,000 acres of soybeans at 60 bpa x $2.05/bu equals $1.23 million. The $504,000 and $1.23 million are added together ($1.734 million) and divided by 30,000 (20,000 + 10,000) total acres planted in the county to equal $58 an acre. In this hypothetical county all 2019 planted acres of corn and soybeans would receive $58/acre. For counties, with numerous eligible commodities this process is expanded.
Corn
Ethanol production for the week ending August 23 was 1.038 million barrels per day, up 15,000 from the previous week. Ethanol stocks were 22.982 million barrels, down 0.385 million barrels. Corn net sales reported by exporters for August 16-22 were up from last week with net sales cancelations of 0.1 million bushels for the 2018/19 marketing year and net sales of 33.8 million bushels for the 2019/20 marketing year. Exports for the same time period were up 13 percent from last week at 24.1 million bushels. Corn export sales and commitments were 94 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31) compared to the previous 5-year average of 104 percent. Across Tennessee, average corn basis (cash price-nearby futures price) strengthened at Northwest Barge Points and weakened at Memphis, Upper-middle, and Northwest Tennessee. Overall, basis for the week ranged from 19 under to 33 over with an average of 7 under the September futures at elevators and barge points. September 2019 corn futures closed at $3.58, down 1 cent since last Friday. For the week, September 2019 corn futures traded between $3.55 and $3.69. Sep/Dec(’19) and Sep/Dec(‘20) future spreads were 11 and 46 cents.
Nationally, the Crop Progress report estimated corn condition at 57 percent good-to-excellent and 13 percent poor-to-very poor; corn dough at 71 percent compared to 55 percent last week, 91 percent last year, and a 5-year average 87 percent; and corn dented at 27 percent compared to 15 percent last week, 59 percent last year, and a 5-year average of 46 percent. In Tennessee, the Crop Progress report estimated corn condition at 83 percent good-to-excellent and 3 percent poor-to-very poor; corn dough at 96 percent compared to 93 percent last week, 99 percent last year, and a 5-year average of 97 percent; corn dented at 79 percent compared to 62 percent last week, 83 percent last year, and a 5-year average of 79 percent; corn mature at 21 percent compared to 4 percent last week, 24 percent last year, and a 5-year average of 22 percent; and corn harvested at 1 percent compared to 1 percent last year and a 5-year average of 1 percent. In Tennessee, September 2019 corn cash contracts averaged $3.47 with a range of $3.31 to $3.59. December 2019 corn futures closed at $3.69, up 2 cents since last Friday. Downside price protection could be obtained by purchasing a $3.70 December 2019 Put Option costing 13 cents establishing a $3.57 futures floor. December 2020 corn futures closed at $4.04, unchanged since last Friday.
Soybeans
Net sales reported by exporters were down compared to last week with net sales of 3.5 million bushels for the 2018/19 marketing year and net sales of 13 million bushels for the 2019/20 marketing year. Exports for the same period were down 26 percent compared to last week at 32.1 million bushels. Soybean export sales and commitments were 105 percent of the USDA estimated total annual exports for the 2018/19 marketing year (September 1 to August 31), compared to the previous 5-year average of 104 percent. Average soybean basis weakened or remained unchanged at Memphis, Northwest Barge Points, Northwest, and Upper-middle Tennessee. Basis ranged from 44 under to 1 over the September futures contract at elevators and barge points. Average basis at the end of the week was 23 under the September futures contract. September 2019 soybean futures closed at $8.57, up 14 cents since last Friday. For the week, September 2019 soybean futures traded between $8.39 and $8.64. September soybean-to-corn price ratio was 2.39 at the end of the week. Sep/Nov and Sep/Jan future spreads were 12 and 25 cents.
Nationally, the Crop Progress report estimated soybean condition at 55 percent good-to-excellent and 13 percent poor-to-very poor; soybeans blooming at 94 percent compared to 90 percent last week, 100 percent last year, and a 5-year average of 99 percent; and soybeans setting pods at 79 percent compared to 68 percent last week, 94 percent last year, and a 5-year average of 91 percent. In Tennessee, the Crop Progress report estimated soybean condition at 72 percent good-to-excellent and 5 percent poor-to-very poor; soybeans blooming at 93 percent compared to 90 percent last week, 99 percent last year, and a 5-year average of 97 percent; soybeans setting pods at 83 percent compared to 73 percent last week, 94 percent last year, and a 5-year average of 88 percent; and soybeans dropping leaves at 4 percent compared to 3 percent last year and a 5-year average of 2 percent. In Tennessee, October/November 2019 soybean cash contracts average $8.27 with a range of $8.01 to $8.43. November 2019 soybean futures closed at $8.69, up 13 cents since last Friday. Downside price protection could be achieved by purchasing an $8.70 November 2019 Put Option which would cost 21 cents and set an $8.49 futures floor. Nov/Dec 2019 soybean-to-corn price ratio was 2.36 at the end of the week. January 2020 soybean futures closed at $8.82, up 11 cents since last Friday.
Cotton
Net sales reported by exporters were up compared to last week with net sales of 146,000 bales for the 2019/20 marketing year and 23,200 bales for the 2020/21 marketing year. Exports for the same time period were down 50 percent compared to last week at 171,000 bales. Upland cotton export sales were 50 percent of the USDA estimated total annual exports for the 2019/20 marketing year (August 1 to July 31), compared to the previous 5-year average of 45 percent. Delta upland cotton spot price quotes for August 29 were 56.80 cents/lb (41-4-34) and 59.13 cents/lb (31-3-35). Adjusted World Price (AWP) decreased 1.12 cents to 51.45 cents.
Nationally, the Crop Progress report estimated cotton condition at 43 percent good-to-excellent and 17 percent poor-to-very poor; cotton setting bolls at 90 percent compared to 85 percent last week, 90 percent last year, and a 5-year average of 91 percent; and cotton bolls opening at 28 percent compared to 24 percent last week, 20 percent last year, and a 5-year average of 19 percent. In Tennessee, the Crop Progress report estimated cotton condition at 68 percent good-to-excellent and 11 percent poor-to-very poor; cotton setting bolls at 97 percent compared to 94 percent last week, 99 percent last year, and a 5-year average of 95 percent; and cotton bolls opening at 8 percent compared to 4 percent last week, 22 percent last year, and a 5-year average of 14 percent. December 2019 cotton futures closed at 58.83, up 0.62 cents since last Friday. For the week, December 2019 cotton futures traded between 56.59 and 59.49 cents. Dec/Mar and Dec/Dec cotton futures spreads were 0.61 cents and 3.45 cents. Downside price protection could be obtained by purchasing a 59 cent December 2019 Put Option costing 2.3 cents establishing a 56.7 cent futures floor. March 2020 cotton futures closed at 59.44, up 0.29 cents since last Friday. December 2020 cotton futures closed at 62.28, down 0.21 cents since last Friday.
Wheat
Nationally, the Crop Progress report estimated winter wheat harvested at 96 percent compared to 93 percent last week, 100 percent last year, and a 5-year average of 99 percent; spring wheat condition at 69 percent good-to-excellent and 6 percent poor-to-very poor; and spring wheat harvested at 38 percent compared to 16 percent last week, 75 percent last year, and a 5-year average of 65 percent. In Tennessee, August 2019 wheat cash contracts ranged from $4.57 to $4.91 for the week.
Wheat net sales reported by exporters were up compared to last week with net sales of 24.3 million bushels for the 2019/20 marketing year. Exports for the same time period were down 33 percent from last week at 16.22 million bushels. Wheat export sales were 42 percent of the USDA estimated total annual exports for the 2019/20 marketing year (June 1 to May 31), compared to the previous 5-year average of 47 percent. September 2019 wheat futures closed at $4.51, down 24 cents since last Friday. September 2019 wheat futures traded between $4.50 and $4.80 this week. September wheat-to-corn price ratio was 1.26. Sep/Dec and Sep/Jul future spreads were 11 and 28 cents. December 2019 wheat futures closed at $4.62, down 15 cents since last Friday. In Memphis, June/July 2020 cash contracts ranged from $4.83 to $4.87. July 2020 wheat futures closed at $4.79, down 11 cents since last Friday. Downside price protection could be obtained by purchasing a $4.80 July 2020 Put Option costing 30 cents establishing a $4.50 futures floor. ∆
DR. AARON SMITH: Assistant Professor, Crop Marketing Specialist, University of Tennessee
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