Grain prices are trying to rebound this morning as the prospect of a new NAFTA deal lingers.
“Read not to contradict and confute, nor to believe and take for granted… but to weigh and consider.” – English Philosopher
NAFTA, Trump, and Subsidies Weigh on Grain Markets
Grain prices are trying to rebound this morning as the prospect of a new NAFTA deal lingers. Soybean prices and canola prices continue to fall on good crop prospects.
In yesterday’s FarmLead Breakfast Brief, I acknowledged the bearish effects of last week’s ProFarmer crop tour, but also the spillover effect it was having on canola prices, especially basis levels.
As Garrett mentioned in yesterday afternoon’s Grain Markets Today recap, futures prices ended Monday all in the red thanks to a myriad of factors.
Crop Progress Update
Yesterday’s USDA crop progress report showed us that the US crop continues to look fairly healthy.  Both corn and soybean good-to-excellent ratings of 68% and 66% respectively are matching their 5-year averages.
The percentage of the US corn crop dented is now at 61%, well above the 5-year average of 40%. That being said, 10% of the crop is now considered to be mature, 2 points ahead of the 5-year average.
For soybeans, 7% of fields are dropping leaves, 3 points ahead of the average of 4% seen for the last week of August.
NAFTA Under the Gun
Probably the best recap of how the NAFTA trade talks have gotten here and what’s next on the docket is from Shaun Haney over at RealAgriculture.com.  Click the link for the full run-down of the timeline and next steps, but the main takeaways for me are:
• Mexico wants to wrap the NAFTA re-negotiation up before December 1 when their new President-elect, comes into power.
• Mexico made some concessions on autos and cheese; two industries the Canadian government has said they have a strong interest in protecting. This includes requiring automakers to ensure 40% to 45% of a vehicle’s content is produced by workers earning a wage of at least $16 an hour (Basically meaning it needs to be built in the US). 
• Canada has until Saturday, September 1 to negotiate their bilateral trade issues. If not, US President Trump said he’ll invoke 25% automobile tariffs on Canada.
• What will the Dairy industry of Canada be willing to compromise on?
• President Trump only has authority to negotiate a tri-lateral NAFTA deal, not one with just Mexico, which means that he’ll need Congress’ approval to scrap NAFTA and a sign a deal with just Mexico if Canada is not willing to play ball on this version of the re-write.
Simply put, there are a lot of moving parts (and politics) at play here. One could argue that President Trump doesn’t have a great rapport in Congress and that they won’t approve a trade deal in North America that does not include Canada.
Washington Paying US Soybean Farmers $1.65 /Bushel
The other big news coming out of Washington was the payment plan for US farmers to compensate them for the trade war with China (and others). Here’s a breakdown of the subsidy:
• Wheat: 14 cents per bushel on 50% of 2018 production
• Sorghum: 86¢/bu on 50% of 2018 production
• Soybeans: $1.65/bu on 50% of 2018 production
• Corn: 1¢/bu on 50% of 2018 production
• Cotton: 6¢/lbs on 50% of 2018 production
• Dairy: 12¢/CWT on 50% of MPP production
• Pork: $8 per head on Aug. 1 for 50% of the herd
There’s about $6.2 Billion USD to go around, and about $3.6 Billion has been earmarked for soybean farmers alone. The USDA said that cash payments could double, but it would depend on trade developments by the end of the 2018 calendar year.
Each crop and livestock farmer can receive up to a maximum of $125,000 in compensation. These payments and limits are completely separate from existing government programs like PLC and ARC.
Also, one of the main asterisks is that, to be eligible, “applicants must have an ownership interest in the commodity, be actively engaged in farming, and have an average adjusted gross income (AGI) for tax years 2014, 2015, and 2016 of less than $900,000.”
From a timing perspective, registration for the program by farmers will start on September 4 but (only if their 2018 harvest is complete) and run mid-January though.
There are two questions I’m left pondering:
First, how do these government payments potentially affect the actual cash markets?
Second, will China start doling out more subsidies for their farmers? Or maybe some other countries farmers for that matter.
We will be answering these questions for our GrainCents readers this week.