Washington Insider -- Tuesday

By DTN's Washington Insider

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

The Trump administration rolled out their initial phase of the aid package aimed at helping farmers cope with trade policy effects. There will be an initial installment of around $4.7 billion for cotton, corn, dairy, pork, sorghum, soybeans and wheat.

USDA confirmed the rumored payment rates of $1.65 per bushel for soybeans and 1 cent per bushel on corn. But the initial payments will be made on 50 percent of a producer's actual production of those commodities. There will be a $125,000 payment limit per person/entity combined for the cotton, corn, sorghum, soybean and wheat payments, with another limit of $125,000 combined for pork and dairy.

USDA will purchase around $1.2 billion in a host of commodities, moving those to consumers via donation/food/feeding programs.

USDA said it would decide in December on whether to make the second round of payments and how those payments would be made.

Industry reaction to the aid package can be found in the story "Farmer Trade Aid Detailed," in the Top Stories section of DTN.

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US, Mexico Reach NAFTA Overhaul Deal

The U.S. and Mexico have come to terms on updating the NAFTA agreement after weeks of negotiations, including lengthy session over the past weekend.

President Donald Trump and Mexican President Enrique Pena Nieto said talks with Canada would begin immediately. However, Trump was more guarded on the prospect of Canada returning to the talks. "I think with Canada, frankly, the easiest we can do is to tariff their cars coming in," Trump stated. "It is a tremendous amount of money and it is a very simple negotiation. It could end in one day and we take in a lot of money the following day."

On agriculture, Trump said, "Our farmers are going to be so happy. Farmers have stuck with me." As for what agriculture will reap from the deal, Trump said, "Mexico has promised to immediately start purchasing as much farm product as they can."

But Trump also signaled he would terminate NAFTA and focus on the U.S.-Mexico accord, a development that could raise anxiety in US agriculture circles. Trump declared he would rename the pact the U.S. Mexico Free Trade Agreement and drop the NAFTA name, noting it had "bad connotations" for the U.S.

The U.S. has not removed steel and aluminum import duties on Mexico and therefore Mexico has not removed their tariffs on U.S. goods which primarily hit U.S. ag products.

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Phenomenal Soybean Yields Expected

While much of the media attention remains focused on trade policies, proposed and actual, producers are also highly concerned about the size and health of the coming crop. By all accounts the crop looks good, which likely means growing farm income problems since US stockpiles are already forecast at record as exports wane.

Crop tours and industry predictions caused Bloomberg to conclude that the government's August forecast "was probably accurate," and that this year's soybean crop "will be the biggest ever."

Good crops are generally good news for U.S. soy growers, who once again have mostly avoided serious damage from drought and disease. But the bumper crop also presents a potential headache since producers are already trying to figure how to whittle away an expanding domestic surplus at the same time Chinese tariffs on U.S. sales have curtailed demand from the biggest export market.

"This is really going to highlight how much we need to have positive trade relations and to get this worked out," Brian Grossman, a crop tour participant and Chicago-based market strategist at Zaner Ag Hedge, said.

The DTN Digital Yield Tour on Aug. 20 put national average soybean yields at 50.67 bushels per acre (bpa), while the Pro Farmer Crop Tour expects yields will reach 53 bpa, which would top the current record of 52 set in 2016. USDA's Aug. 10 forecast was 51.6.

November soy futures have tumbled about 8 percent this month, as expectations of a large crop have firmed up. They were 1.5 percent lower at $8.4275 a bushel in Chicago early in the week and the contract is heading for its fourth loss in five months as production swells and the U.S.-China trade war drives demand concerns. Talks between the two countries last week wrapped up without major progress.

As a result, hedge funds are betting on more price declines, Bloomberg said. As of Aug. 21, they had a soy net-short position of 40,049 futures and options, according to U.S. Commodity Futures Trading Commission data published three days later. The holding, which measures the difference between bets on a price increase and those on a decline, is the most bearish for this time of year since 2006.

One bright spot for producers: the price declines seem to be stimulating new demand from importers other than China. Total commitments for U.S. supply in the coming season are higher than the same time in 2017. At the same time, corn prices have fared better than soy. Midwest farmers often grow both crops and alternate fields between the two.

The expectations for bumper crops, largely planted to supply growing overseas markets, are widely thought to increase scrutiny of the administration's "get tough" trade policies. While the administration continues to plug its "farm aid" temporary assistance policies, grower concerns also appear to be increasing as the trade fight continues and estimates of surpluses grow, Washington Insider believes.

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Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN's Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the U.S. Ag Policy, U.S. Farm Bill and DTN Ag News sections on their News Homepage.

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(GH\SK)

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