Ahead of the Open: Escalating U.S./China Trade Threats Lead to Grain Market Washouts; Livestock Lower

Posted on 06/19/2018 8:03 AM

Crop calls 

Corn: Down 6-9 cents
Soybeans: Down 20+ cents
Wheat: 8-11 cents lowerz

General Note: Trade-war escalation between the two biggest economies sent grains, crude oil, global stocks, and the Chinese currency lower to sharply lower overnight. China is vowing to retaliate "forcefully" against President Donald Trump’s threatened tariffs on another $200 billion of its goods after announcing $50 billion last Friday. Trump ordered the identification of $200 billion in Chinese imports for an additional 10% tariff, with another $200 billion after that if Beijing retaliates like it did last Friday with its own $50 billion retaliatory threat. China cannot target the size of U.S. tariffs since it imported $129.89 billion of U.S. goods last year, compared with U.S. purchases of $505.47 billion of Chinese products, according to U.S. data. Investors are cutting risk exposure and agricultural markets are in washout mode with little buying interest overnight.

Corn futures fell more than 2% overnight to new lows on trade threats and improving U.S. crop conditions. Hot, wet weather sent U.S. corn ratings to the highest since 1987 for the week ended June 17, USDA data on Monday showed. Widespread rain this week will maintain generally favorable conditions in areas that don’t received excessive moisture or wind and hail damage. China and U.S. leaders still have time to negotiate a reversal of the current trade-war escalation before the July 6 implementation of the first round of new tariffs take effect, but time is short. 

Soybean futures slump sharply, falling below support at $9 in July and nearing that level in November contract. The focus is shifting to worries that overall global demand for soybeans will decline as China is signaling it will not bend to U.S. bullying and is prepared for a long battle if the U.S. wants it. Weather remains beneficial with more rain reaching the drier pockets this week.  

Wheat futures seeing pressure from increasing winter wheat harvesting as 27% of the crop harvested as of June 27. The trade story is now shifting to new concerns that U.S.-China issues will slow growth in emerging markets, reducing global wheat demand. The U.S. dollar index rose near a 1-year high, reducing competitiveness of U.S. supplies on the world market. Spring wheat losses limited by dry weather in Russia and Ukraine.  

Livestock calls 
Cattle: Lower
Hogs:  Lower

Cattle futures will give back some of the gains the past two days on trade concerns. Lower beef prices will add to the early session pressure as cattle slaughter heads for the annual peak in the next several weeks. 

Hog futures seen on the defensive to start. Firmer pork and hog prices Monday should provide a floor of support. Slaughter estimated at 415,000 Monday, down from 427,000 as marketings head for seasonal low the next several weeks. 

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