Evening Report

Posted on Tue, 01/14/2020 - 14:24

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Wheat producers: Increase 2019- and 2020-crop sales… March SRW wheat futures hit our standing order at $5.70 this morning, triggering a 10% 2019-crop cash sale for hedgers and cash-only marketers to get to 80% priced. July SRW wheat futures hit their highest level since late 2018, so we also recommend hedgers and cash sell another 10% of expected 2020-crop production via hedge-to-arrive contracts for harvest delivery to get to 30% forward-priced.


Phase 1 signing scheduled for 10:30 a.m. CT tomorrow, with text released near the same time… The Office of the United States Trade Representative (USTR) has indicated that the text of the Phase 1 deal will be released to the public shortly after it has been signed on Jan. 15. Fox Business News reported that a U.S. trade source said the Phase 1 deal text will be posted on the USTR website the “moment” the agreement is signed on Wednesday. That signing ceremony is scheduled to take place at 10:30 a.m. CT at the White House.

Meanwhile, several news outlets are reporting the U.S. will keep remaining tariffs on China through the 2020 elections, which is not a surprise. Bloomberg reports the two sides have an understanding that no sooner than 10 months after the deal is signed, the U.S. will review progress and consider trimming tariffs that are currently in place on $370 billion of imports from China—7.5% on $120 billion worth of Chinese goods and 25% on $250 billion worth of such goods.

This should not have surprised traders as it lined up with what administration officials and President Donald Trump have been saying, but equity and commodity markets initially softened on the “news.”


Lighthizer addresses trade relations with China… U.S. Trade Representative Bob Lighthizer was on Fox Business Network last evening to talk about the Phase 1 agreement. He held up a copy of the completed text and talked about various aspects of the agreement, what’s ahead and the process itself. Following are some of the highlights. You can find more from him here.

  • “We believe that we have a serious problem with China, both an imbalanced economic relationship like $450 billion or more in yearly deficits. In addition, there are a lot of unfair practices. And then there are practices like cyber and the like. The president [Donald Trump] has been talking about this for at least 30 years. And so, he decided we would try to tackle it. You have two choices: You try to decouple the economies, but that probably is not practical. Or, you try to write rules that work for the United States and benefit the United States, and that's what the president decided to do. This deal has real structural change. It has substantial purchases. It also is completely enforceable, and we maintain $380 billion worth of tariffs on important products. So, across the board, it is a really, really good deal for the United States and it will work — if reformers in China want it to work. And if that happens, great. If it doesn't happen, it's fully enforceable.”
  • “There are other problems that exist with China and we will take on those in Phase 2 or Phase 3 as needed. There are really serious problems, but the biggest thing to me is to get a really big deal going. There are a lot of ways you can tell what they're doing... the purchasing is easy to enforce. Regarding their currency and other issues, we will have people looking at whether or not they're living up to their commitments on tech transfer on intellectual property, on financial services, on opening agricultural standards issues and the like. So, this is something that we all have to monitor. I'm not Pollyanna about any of this. We're tough, hard people and we expect them to live up to the letter of the law, but we will bring cases and will bring actions against them if they don't, but for right now this is a really, really big agreement and a huge step forward.”
  • Regarding critics of the Phase 1 accord that is not yet officially released, Lighthizer said, “There's an old expression that nothing's impossible for the man that doesn't have to do it. The great Teddy Roosevelt's quote about the critic... the person who ends up getting the credit is the person who's actually in the fight. The president is in the fight and he's the one who was standing up and really for the first time ever. This is not a new problem, this [goes back to] Obama, it goes back to George W. Bush and it was made massively worse in the Clinton administration. Every single person said they would take it on, but this is the first president who's done it. I think that the president's got a vision. He's got us working hard on it and we have taken a huge step forward.”


Some think China can fulfill its commitment to purchase $80 billion of U.S. farm products over two years… Rosa Wang, Shanghai-based analyst with agricultural data provider JCI China, said that she was “quite confident” that China could meet the targets. She suggested that most of the expenditures would be on soybeans, followed by smaller purchases of nuts and fruits, pork, poultry, corn, sorghum and ethanol by-products. Click here for a table breaking down JCI’s projections.

An industry analyst made the following observations about JCI’s outlook: “According to estimates made by JCI about what products and how much volume China could buy, China’s annual buys of corn and wheat each could reach 8 MMT, very near the tariff-rate import quotas (TRQs). Though sorghum and DDGS were not under China’s TRQs system, import volume of the two products could also hit 8 million MT, respectively. Given the 50% replacement rate of DDGS to corn, 8 MMT of DDGS was equivalent to 4 MMT of corn. Besides, if China buys 4 MMT of fuel ethanol imports from the U.S. as expected in 2020, it is equivalent to more than 1 MMT of corn imports. Thus, China’s buying of corn, DDGS and sorghum in 2020 is equivalent to an import of at least 12 MMT of grain.”

The analyst added, “Ask freight people how we could ship the amounts JCI signaled... barge freight has been weak lately.”


Trade more concerned with precedent Russian quota might set more so than actual impact… As we reported in “First Thing Today,” Russia’s sag ministry is considering setting a non-tariffs quota for grain exports of 20 MMT for the first half of 2020, the ag ministry said today. The quota would be scrapped for the more active part of the season the second half of the calendar year (from July 1 to Dec. 31). At this point, the plan is simply a draft that has not yet been approved by the government.

Russia’s ag ministry explains food security should be a priority and the quota is meant to protect against shortages of grain on the domestic market. For the first half of the 2019-20 marketing year (July through December) Russia has already exported 25 MMT of grain, with total shipments expected to hit 45 MMT for the marketing year.

Andrey Sizov, an analyst with the ag consultancy SovEcon, says that while shipments the first half of the 2020 calendar year will likely fall short of the 20 MMT quota, “the precedent is unpleasant.” Another European trader cited by Reuters points out, “The gradual build up to Russian export restrictions has started in similar ways in the past.”


U.S. fiscal deficit pokes above $1 trillion for 2019… The U.S. fiscal deficit topped $1 trillion in 2019, the first time it passed that level in a calendar year since 2012, according to Treasury Department figures released Monday. The budget shortfall hit $1.02 trillion for the January-to-December period, a 17.1% increase from 2018, which itself had seen a 28.2% jump from the previous year. Rising corporate tax revenue helped lower the pace of increase in the spending gap.

For the fiscal year, which began in October, the shortfall is already at $356.6 billion, an 11.7% increase from a year ago. If that pace continues it would also lead to a fiscal deficit for 2019-20 of more than $1 trillion.

Through December, receipts have totaled $806.5 billion while outlays have come to $1.16 trillion. President Donald Trump has now added more to the national debt than former President Barack Obama did in his full second term.


Petrobras to idle Brazilian fertilizer plant… Brazil’s state-controlled Petreleo Brasileiro SA (Petrobras) announced it will idle a fertilizer plant in Parana that has been consistently losing money since it was acquired in 2013. The oil company said it had been trying to sell the nitrogen fertilizer unit without success for more than two years. The company will fire nearly 400 people as a result.