 Hello, this is Fran Olson, crop economist and marketing specialist with NDSU Extension. This is the weekly soybean update for the week of January 28th through February 3rd. This week we're going to focus on a brief update on the status of the current trade negotiations between the United States and China. Senior-level U.S. and Chinese trade officials have just completed two days of face-to-face negotiations in Washington, DC. They met on January 30th and 31st. The initial reports that are coming out of these negotiations were very positive. It sounds like there was some progress made. As part of these trade talks, China has announced that they will purchase an additional 5 million metric tons or approximately 184 million bushels of U.S. soybeans. These purchases will likely take place over time and won't be a single purchase of 5 million metric tons, but the fact that the Chinese are continuing to buy U.S. product as agricultural products as they negotiate these terms is a very positive sign. The other thing that was kind of a major announcement coming out of this was that U.S. negotiating team was invited to visit Beijing in mid-February. Now, again, this would continue the face-to-face negotiations. I do want to make sure that everybody understands negotiations are going on almost continuously via conference call or web conferencing, so there are talks going on on a regular basis, but the face-to-face negotiations are the ones that seem to make the most progress and those are the ones where commitments are made. Now, there was a rumor, and I want to emphasize a rumor, that President Trump and President Xi of China would also attend a face-to-face meeting later on in February to try and seal this comprehensive deal. It's always difficult to try and sift through and interpret the information that comes out after a major trade negotiations session like we just completed in Washington, D.C. What I try and do is focus in on the comments that are made by kind of the key leaders in these negotiation process, and one of those is U.S. trade representative Robert Lighthizer. Now, Mr. Lighthizer is really the chief negotiator, the head person, for negotiating the terms of any kind of deal between the U.S. and China. His comments in the press release afterwards said that there was substantial progress made on intellectual property and forced technology transfer issues, and again, these are really the two very big picture issues that are central to the negotiations. Agriculture is important, obviously it's important to us in production agriculture, but these are the really two areas that we have the greatest disagreement and have the most challenges. Now, when asked about the opportunity for an actual deal to be completed by the March 1 deadline, Mr. Lighthizer said at this point it's impossible for me to predict success, but we're in a place where if things work out, it could happen. So again, ending on kind of a positive tone. During the press conference, Mr. Lighthizer was asked some additional follow-up questions regarding the specific objectives for the U.S. trade negotiating team during this last round of talks, and especially as it related to this intellectual property rights as well as forced technology transfer. And his comment was really in three areas. They want to be more specific to make sure that both parties understand what is expected in the terms, second is to be all-encompassing that includes a broad range of products and goods and services, and that it also be enforceable, and of course enforcement becomes a major issue. Now what are some of the mechanisms that could be used as part of this enforcement? One of them that was discussed, and I want to emphasize may be included would be some kind of snapback provisions where U.S. tariffs would automatically be re-initiated if the Chinese did not follow through on their commitments. Another point of discussion was well with the U.S. and Chinese tariffs, which are currently in place, be part of this discussion and know those tariffs that are currently in place will stay in place. Now let's try and transition into what are the implications for U.S. soybean prices as a result of the information we gained from these last trade discussions. This slide provides a brief summary of the purchases of U.S. soybeans by the Chinese since the beginning of the marketing year on September 1. The purchases that are listed for December, those four purchases are actual numbers that have been reported into the U.S. D.E. reporting system and are actual verifiable numbers. The sale on January 7 was a trade rumor. We don't have the exact numbers yet because the export sales reports were halted due to the government shutdown. These are the trade estimates that came in on the amount of purchases. So if we add all those up, the total purchases of U.S. soybeans by the Chinese is somewhere between 3.7 million metric ton. Now just as a reference point between September 1 and January 11 of last year, the Chinese had purchased approximately 21 million metric ton. So they are behind the curve in their normal purchasing patterns because of the tariffs. Again, there was an announcement they were going to purchase an additional 5 million metric ton over the next several weeks to be able to increase that amount. But again, the total values are well below what we would see this time last year. So how have world soybean prices responded to these trade negotiations? This is a graph of soybean prices received at a port. So it would be the inbound soybeans, not the price of the soybeans loaded onto a vessel. But it would be the price for soybeans delivered to a port facility. The red line is the U.S. PNW, so that's the 8 elevator locations in the Pacific Northwest. The green line is the U.S. Gulf, so that would be in the Gulf of Mexico. The blue line is the Brazilian port, Potanagua. And the black line is the Argentina river ports. And as you can see historically, if you're kind of under normal market conditions, looking back in January of 2018, those prices tend to be clustered very closely together. And then as we move through time, as we move into the summer months and into the harvest, you see this big discrepancy or difference between the prices in the United States and the prices in South America. And of course that's because of the tariffs and shifting trade patterns. But you see also see now recently as the negotiations have become more fluid between the United States and China that the world prices for soybeans have started to narrow up and being again very clustered together. So based on today's prices, the U.S. soybean prices as well as those prices for South American soybeans at the export terminals are very, very similar. We've also seen some adjustments in the basis levels for soybeans at different points within the United States. This figure shows the basis levels at specific elevators that I used to kind of represent a region or a state. The red line is North Dakota, the brown line is South Dakota, the black line is Minnesota, the blue line is Iowa, the purple line is Nebraska, the green line is Illinois, and that dark blue line on the very top is the Louisiana Gulf. So again you can see that these basis patterns tend to go up and down together. In the North Dakota region we have this very deep drop in basis or very negative basis as we moved into the harvest months. We've seen some recovery now as the trade flows have begun to open up in the Pacific Northwest and as the local elevators are able to work through this backlog of soybeans that were delivered at harvest. So the elevators that I have talked to are starting now to get cleaned out of the soybeans. They have some additional room and some additional capacity to handle more soybeans when necessary so you start to see that basis levels start to improve. So one of the common questions that I get from farmers is what will happen if China does come in and start buying large quantities of U.S. soybeans? Do we have the capacity to be able to handle that? And what's going to happen to local basis levels? Well, there's obviously a lot of pieces to that. One is how quickly and what quantities do the Chinese come in and purchase? If they do, is it going to be in large chunks or is it going to be smaller amounts over time? The second is what's the capacity at the local elevator level to be able to handle more soybeans? What's the capacity of the rail system to be able to handle that? And then finally what's the capacity constraints out in the Pacific Northwest on the export terminals? Well, to answer that last question, the USDA grain transportation report provides weekly updates on the movement of grain in the United States, not only by rail but also by barge. And they track the volumes of grain shipped to different port locations. This is one of the figures that's reported every week. I want you to focus in on that dotted green line on the very top. That represents the rail deliveries of grain to the Pacific Northwest elevators. And again, it's weekly information so we go back into 2016. As you can see, there's quite a bit of variability and there is some seasonal patterns that we start to pick up. I want you to really focus in on the information on the far right hand side. If you notice the grain shipments, again this is by rail to the P&W ports, we have been relatively high not only through last winter but then also through the summer months. But now as we get into the winter months, it's started to drop off. Two-fold reason for that, obviously we don't have the soybean shipments out to the P&W that we normally see at this time of year. But also the corn shipments from the northern plains into the P&W ports have also been slowing. Now as I talked to local elevators, what they're saying is that the rail transportation system has been very fluid. The turnaround times have been very high levels so we do not have any major constraints. Now the cold weather we've had the last few days may have slowed that up a little bit. But the grain movement right now and the logistics system that we have has some additional capacity to be able to handle larger volumes of grain as we move forward in time. So my suspicion is, my expectation is that as we move forward, if there are additional purchases of US soybeans by China, that the basis levels will start to respond. We've now worked our way through this backlog of grain and we're becoming much more fluid and so local basis levels should be more responsive to the needs of the marketplace, which again should be positive for US farmers and in particular farmers in this area. So this completes this week's update. Please feel free to contact me if you have any questions or need some additional information. Thank you for listening.