With the recent delay of the mid-October 30% tariff increase, and the agreement by China to purchase more agricultural goods from the U.S., the heat of tariff concerns seems to have waned right along with the summer sun. Ironically, it was trade talks that actually boosted price recently, with Washington, D.C. meetings helping to keep futures trading in the green. Time will tell if anything dramatically affects tariff talks before the election cycle begins in January — as Oliver Sloup of BlueLine Futures has noted:

“It’s been the biggest headline of the year without much movement on either side.”

In addition to tariffs, weather and floods played a big role in this historic growing season

When an early October Northern Plains blizzard put traders in a rush to short cover during the initial stage of harvest, a perfect storm for price premiums was created. Savvy traders were given a nice opportunity until higher yields from the USDA report brought future prices down more than expected.

USDA reports were more of a monthly highlight than normal this year, with delayed planting due to this season’s floods shortening the growing season. Thursday’s report surprised traders by raising prices above expectations. Still, the USDA is making minor adjustments at this point, while the final state yields in 2020 could see significant adjustments (mainly the Dakotas). A similar adjustment to 2019 numbers was made in 1994; see more on the 2019 flood comparison to 1993 here. And as Sloup noted:

“Hybrid grains can go a fair distance in offsetting short growing seasons.”

However, there can be a cost to hybrids in terms of expense, grain quality, and overall yields.

And ethanol futures are still waiting in the wings, along with a final word on tariffs

Ethanol is suffering from a major trading headwind because of waivers to small refineries, who have received a pass from Trump on blending ethanol with their gasoline. This waiver was increased by Trump in early October to 16 billion gallons, so the demand for ethanol is a bit better, but still not there. As the Des Moines Register recently reported, three additional ethanol plants in Iowa have recently shut down, increasing uncertainty for ethanol processors. Long-term, this picture, as well as the final word on tariffs, will hopefully have less volatility and more predictable outcomes.

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