Ahead of the Open: Burgeoning U.S-China Trade War, Beneficial Weather Weigh on Grain Prices

Posted on 07/11/2018 7:36 AM

Grain Calls

Corn: Down 2-4 cents

Soybeans: Down 10-13 cents

Wheat: Down 4-6 cents

 

General Comment:  Grains and global stock markets slumped overnight after the U.S. unveils a new list of $200 billion worth of 10% tariffs on China goods, increasing fears of escalating trade war between the two biggest economies and fallout on world economic growth. China accused the U.S. of bullying and warned it would retaliate without specifying new actions. A two-month period for public comment before the new U.S. levies get imposed on thousands of China imports provides little hope for a negotiated compromise with no talks schedule and both sides appearing to prepare for a long conflict. No changes in Midwest weather. Dry and hot through Sunday followed by normal to slightly below temperatures and rain early next week. Some warming expected by July 19, but no signs of excessive heat.

 

Corn futures forged new contract lows overnight after the U.S. argues it had no choice but to move forward on the new duties after China failed to respond to warnings about unfair trade practices and abuse of American intellectual property. Traders expected USDA on Thursday to raise the U.S. 2018-2019 carryover to near 1.725 billion bushels, up from 1.577 billion estimated last month. The market is also looking for bigger U.S. inventories to boost the world carryover to near 155.7 million metric tons from 154.7 million estimated in June and still down sharply from 191.6 million seen for this year.

 

Soybeans fell more the 15 cents overnight and look poised to test contract lows set last week. The president of China state grain trader COFCO said today that China could reduce reliance on U.S. soybean by increasing non-U.S. soybean and other oilseed imports, buy more protein meal and meat. Market also positioning for USDA on Thursday to increase U.S. 2018-19 carryover near 500 million bushels, up from 385 million estimated in June and 512 million expected for 2017-18 season.

 

Wheat futures will extend this week’s drop amid continued slow overseas demand for U.S. supplies. Egypt’s purchase of 175,000 MT of Russia wheat yesterday at delivered costs of $220-$221/M was lower than expected. Look for some commercial buying to develop near overnight lows this morning amid declining global crop outlooks. Continued high U.S. spring wheat crop rating suggest USDA may surprise with a bigger U.S. wheat crop in Thursday’s first crop production forecast.

 

Livestock Calls

Cattle: Lower

Hogs: Lower

 

Cattle seen starting lower after the weak finish in futures on Tuesday.  Wholesale beef prices mixed with Choice up 40 cents and select down 23 cents. Movement was moderate even with prices near the lowest since February. Tuesday’s lows are key after futures closed under the 100-day moving average.

 

Hogs seen falling in followthrough selling after August futures fell the exchange limit of $3 and deferred futures also carved out new contract lows. The CME cash hog index fell 19 cents to $81.92 and is projected another 25 cents lower today. At yesterday’s close, August is nearly $12 under the cash index while October is almost $28 discount and December about $32 discount. Those are extremely wide and argue futures have overreacted to the trade spats with Mexico and China and projected 3.5% increase in hog numbers into 2019.   Wholesale pork carcass values fell $1.29 to $84.10, the lowest since June 18. The good news—pork sales jumped to more than 401 loads Tuesday, the most since March 7.

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