A new North American Free Trade Agreement, heavy rainfall wreaking havoc across much of the Corn Belt, solid exports for two out of three majors and ethanol margin struggles have been the topics most heavily discussed by traders.
The newly dubbed USMCA (U.S.-Mexico-Canada Agreement) kept much of the former agreement’s language but with a few new clauses attached for better market facilitation. One particular change captured a good share of attention from members of the U.S. dairy industry as it works to unravel the Class 7 dairy class introduced by Canada early last year.
The Class 7 dairy class covered skim milk powder and other milk proteins. Prior to the introduction of this new class, processors in Canada had to import these products from the U.S. With the introduction of the class, not only did we see a significant reduction in the imports of these products from the U.S. by Canada, but we also saw a significant increase of exports to traditional U.S. customers as the cost of said products was well below U.S. sale value. This had become a huge point of contention across the U.S. dairy industry.
In addition to changes in the Class 7 structure, the agreement opens up market access to additional dairy products, as well as poultry and eggs. According to those who have access to the text of the agreement, U.S. producers will now have access to 3.59 percent of the Canadian dairy market, higher than the initial amount of 3.25 percent agreed upon during Trans-Pacific Partnership negotiations. American producers will also have access to 10 million dozen eggs worth of Canadian demand in the first year, with an additional 1 percent of market access growth each year for the next 10 years. Poultry market access will also grow significantly over the next 10 years.
Of course, because of these changes, many Canadian farmers are angry at their political leaders as they feel their interests were undercut for the sake of the country’s other industrial interests. What is most interesting, however, is the clause stating if any of the three countries were to enter into an unapproved agreement with a country outside of the USMCA, the other two can leave the agreement and create their own.
While there is some confusion as to whether or not this particular clause impacts U.S. interests or not, it is very clear the U.S. is still working to isolate China economically, for one, and that the possibility remains the U.S./China trade spat is setting up to go on for the long haul. There were rumblings the agreement would not make it through a full Senate vote, as well, but only time will tell us whether that is accurate or not.
On the trade side of things, we’ve seen solid export sales for both corn and soybeans. While it may not be overly surprising for corn as the U.S. is one of the few producers with available supply, soybean sales caught some traders off guard, coming in higher than the same point last year.
At this point, it appears corn exports could easily come in 100 to 200 million bushels higher than current U.S. Department of Agriculture projections, based on current sales pace. Soybeans aren’t quite as rosy, with sales pace running 110 million bushels below last year’s levels. However, considering China is nowhere to be found on the purchase side, the fact that other buyers have made their presence known can be seen as slightly supportive.
Wheat export sales continue to struggle. We saw strength return to wheat after a Russian agricultural safety watchdog group threatened a 90-day suspension of shipments out of several ports in the country’s two largest grain-producing regions due to phytosanitary concerns. At this point, the threat seems idle as Russia is still actively selling wheat for export, coming in $20 to $30 a tonne (54 to 82 cents per bushel) cheaper that current U.S. sale values when looking at trade data in the latest Egyptian tender.
Thank goodness for the solid corn export pace, because ethanol margins and production continue to struggle. The deflation of RINs values at the hand of refinery exemptions and slow ethanol export demand has weighed heavy on grind margins across the country, with many plants reportedly working to break even. While year-round access to E15 may do little to impact current margins since E15 is available in the winter months, deferred values could see a shot in the arm as refiners start to work on summer blends next spring.
Weather forecasts continue to call for the wettest areas of the Corn Belt to continue to receive moisture. Reports of damaged beans are beginning to surface and cause concern. While in many cases, the damaged product can be mixed with good supplies and used for shipment, the short-term bottleneck could cause great issues for elevators, farmers and exporters alike. The cool, wet weather is expected to remain across much of the Western Corn Belt, while drier, warmer conditions for the Eastern Belt have appeared in the forecast.
Angie Setzer is vice president of grain at Citizens Elevator. She can be reached at email@example.com.