First Thing Today

Posted on Fri, 12/13/2019 - 06:35

Good morning!

China news spurs rally… Soybean futures are up 10 to 13 cents on trade optimism, with corn and heat futures notching gains ranging from 2 to 7 cents. The U.S. dollar index is down sharply, while crude oil futures are moderately higher.

Agreement in principle (AIP) 2.0... On Oct. 11, President Donald Trump on national television announced U.S. negotiators had reached a Phase 1 “agreement in principle” with China, including a commitment from China to buy $40 billion to $50 billion of U.S. farm products. Trump said all that had to be done was getting the agreement written. Yesterday, Trump and other administration officials announced an agreement in principle had been reached. AIP 2.0 includes the U.S. rolling back some existing tariff rates on Chinese goods and canceling new levies set to take effect Sunday as part of a deal to boost Chinese purchases of U.S. farm goods and obtain other concessions. The text of the agreement has not been finished and it is unclear whether China has agreed to all of the details. None of China’s state-owned media outlets or economic agencies involved in the trade negotiations made any public statement about the deal yet.

Chinese purchases of $200 billion over two years?... China reportedly offered to buy $200 billion worth of U.S. goods and services over the next two years — a total that would include the previous U.S. demand that China buy between $40 billion and $50 billion worth of American farm goods. Trump reportedly liked the $200 billion figure. U.S. agricultural exports to China were just $10 billion in the first 10 months of 2019, down from nearly $20 billion in 2017, before the trade war began. U.S. oil, fuel and lubricant exports were $4 billion over the same period, also about half their 2017 levels. China will reportedly nix restrictions on growth hormones for beef and ease its approval process for genetically modified crops. Trump stressed that the Phase 1 deal includes measures to improve intellectual property protection, open the Chinese financial services market and commit to greater transparency surrounding the management of China's currency.

More details on Chinese purchases of farm products, energy and “other” goods… Michael Pillsbury, a trade advisor to Trump, on Thursday told Fox Business Network that if Beijing fail to make the purchases it has agreed to original tariff rates would be reimposed. Trade experts call that a “snapback” provision. Reviews would be conducted on a periodic basis—perhaps quarterly. Pillsbury said a “goodwill gesture” would have the Trump administration announcing some tariff rate cuts today.

Additional phases of any deal unlikely until after the U.S. elections… Phase 2 and perhaps a Phase 3 would tackle more difficult issues, including forced-technology transfer, subsidies, and the behavior of Chinese state-owned firms. But most think if there are any agreements past Phase 1, they would not come until after 2020 U.S. elections.

Abiove expects Brazilian soybean exports to push higher in 2020 amid U.S. crop shortfall… Brazil’s soybean exports to China may climb 3 MMT in 2020 to 75 MMT, according to the Brazilian oilseeds crusher group Abiove. Daniel Amaral, an economist at Abiove, told Reuters that while Chinese demand has fallen amid an outbreak of African swine fever, the drop was not as significant as the market expected. In addition, the U.S. soybean crop was battered by adverse weather.

Russia working on a new mechanism for curbing grain exports… Russia is looking for a new way to limit grain exports at the level of the country’s exportable surplus under “certain market conditions,” Ag Minister Dmitry Patrushev told a newspaper within the country. Russia is no stranger to such controls. In 2010 it implemented a total ban on grain exports, in 2015 it used informal intervention to limit shipments and over the years it has also used a grain export tax to curb exports. “We cannot allow domestic grain prices to fall or rise significantly, or for the domestic market to be short of grain for livestock farmers or flour millers. Since we live in a market economy, under certain conditions our esteemed exporters may want to export everything. Of course, we cannot allow that,” Patrushev said. Therefore, the country is looking on a new mechanism that would provide a base to restrict grain exports, but it would only be activated out of necessity, according to the minister.

Analyst trims grain production and export outlook for Ukraine… The analyst ProAgro has trimmed its 2019 grain crop estimate for Ukraine by 334,000 MT to 74.485 MMT, citing a smaller corn crop. This prompted the shave 200,000 MT off its grain export outlook that now stands at 55.321 MMT.

Boris Johnson and Brexit win big in U.K. elections… Britain’s prime minister and his Conservative Party won a commanding majority in Parliament on Thursday, paving the way for the country’s withdrawal from the European Union next month. The opposition Labour Party suffered its worst showing in more than 80 years, putting pressure on its leader, Jeremy Corbyn, to resign. He said today that he wouldn’t lead the party into another election but would stay on for the time being. Johnson's government is expected to introduce legislation to complete Brexit before Christmas. But Britain’s departure would still probably not happen before Jan. 31, the date agreed upon with the European Union. Global stocks surged on the results.

Bipartisan budget deal reached… Top Democratic and Republican lawmakers said they reached a tentative agreement on federal government spending, giving Congress and the White House about a week to approve details before funding runs out after Dec. 20. Negotiators are now focusing on a small list of remaining issues. Text is expected to be released Monday. The bipartisan accord covers nearly $1.4 trillion in discretionary government spending across a dozen bills for the rest of the fiscal year, which ends Sept. 30, 2020. House members said they aim to bring packages of the bills to the floor on Tuesday, giving the Senate a few days to decide on the legislation before the end of next week.

New program to modernize rural freight rail... Transportation Secretary Elaine Chao yesterday announced a new pilot program called the Railroad Rehabilitation and Investment Financing Express (RRIF Express) that aims to expedite request for long-term, low-cost loans meant to modernize aging short line and regional freight railroads. The program can have “up to $35 billion in outstanding principal amounts from direct loans and loan guarantees at any one time,” according to the notice published in today’s Federal Register and will also provide up to $26 million in additional financial support.

FDA finds source of separate E. Coli outbreaks… The Food and Drug Admin. (FDA) has identified a common romaine lettuce grower among three separate foodborne illness outbreaks caused by strains of E. coli O157:H7. The agency said it’s a “notable development” in its investigation with the CDC and state health officials to pinpoint the exact source of the contamination in Salinas, Calif., but cautioned that it’s still too early to “conclusively determine” whether other sources are involved.

Marfrig: Brazilian beef prices should remain elevated in 2020… While beef prices in Brazil are likely to remain high in 2020, they will likely retreat from current record-setting levels, Marco Spada, CFO of the meatpacker Marfrig Global Foods, said yesterday. He explained, “This is a structural effect, the per capita consumption in China was already increasing due to rising wages and it accelerated after the African swine fever epidemic.” He elaborated that benchmark cattle prices that have climbed to 225 reals per 15-kg. unit this year will likely drop to the 180 reais to 185 reais area next year. Also of note, Brazilian President Jair Bolsonaro reiterated he would not force price controls on beef to rein in local prices.

Steady cash cattle action as beef prices tumble… Cash cattle action got underway in the Iowa/Minnesota market between $118.00 and $119.50 yesterday, with Kansas seeing additional trade around $119, and Nebraska between $118.50 and $119. This week’s sales are right in line with last week’s action that ranged from $118 to $120, which isn’t all that surprising. Traders have been watching for a top in the cash market after a lengthy run higher. Of note, Choice boxed beef values plunged $3.00 on Thursday and Select fell $1.16, narrowing the spread between the values to $13.09. Movement surged on the price break to 207 loads.  

Limited response in lean hog futures to China developments… Yesterday afternoon there were reports the U.S. and China had reached a trade deal in principle, which helped many markets to rally into the close. But lean hog futures’ response to the headlines was fairly tepid. Over the course of the long trade war, we have been “close” to a deal several other times, only to see things slip away when it comes to putting the accord to writing. The hog market may need to see concrete, penned details (with enforcement) to spur a significant positive response. Cash hog bids were mixed across the Midwest yesterday, resulting in an 11-cent slide in the national average price.

Overnight demand news… A South Korean flour mill purchased around 35,000 MT of wheat from Australia. The country’s Major Feedmill Group also bought around 60,000 MT of corn to be sourced in a private deal. Tunisia tendered to buy 100,000 MT of durum wheat, 92,000 MT of soft wheat and 50,000 MT of feed barley from optional origins.

Today's reports: