First Thing Today

Posted on Wed, 12/18/2019 - 06:31

Good morning!

Profit-taking moves in… Corn and soybean futures are around a penny lower after a quiet overnight session where traders took advantage of recent gains with some profit-taking. Winter wheat futures are down 2 to 6 cents, with the SRW market leading to the downside. Spring wheat futures are down a roughly penny. The U.S. dollar index is notching slight gains and crude oil futures are under pressure.

USTR formally publishes suspension of Dec. 15 tariffs on China... The Office of the U.S. Trade Representative (USTR) today in the Federal Register is publishing the notice that suspends indefinitely the tariffs that were to go into effect on a host of Chinese goods Dec. 15. “On Dec. 13, 2019, following months of negotiations, the United States and China reached a historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China's economic and trade regime, including with respect to certain issues covered in this Section 301 investigation,” USTR said. “In light of progress in the negotiations with China, and at the direction of the president, the U.S. Trade Representative has determined that the action announced on Aug. 20, as modified by the Aug. 30 notice, is no longer appropriate. Specifically, and in accordance with the President's direction, the U.S. Trade Representative has determined to suspend indefinitely the imposition of additional duties of 15% on products of China covered by Annex C of the Aug. 20 notice, which otherwise would have been effective on Dec. 15, 2019.” Further, USTR said they expect to issue another notice in the near future “reducing the rate of additional duty” on good from China that were covered under Annex A of the notice published Aug. 20 “in light of progress in the negotiations.”

How does China get to $40 billion in U.S. farm product purchases?… Commodity analysts (ourselves, included) have been working to calculate how China could reach $40 billion in purchases of U.S. farm products, with many struggling to get past the $32 billion to $34 billion. China watchers indicate the following items could push up import tallies:

  • Purchases for reserves, both domestic and strategic.
  • Reports that China could require all imports to go into China ports not Hong Kong, which could add around $10 billion in value.
  • A possible China move to echo the U.S. Food for Peace program whereby China would donate some of their domestic food products to needy nations, building up goodwill among those nations.

House panel advances trade pact bill… Via a nearly unanimous House Ways and Means Committee vote on Tuesday, the panel advanced to the floor implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA). By law, implementing legislation for a trade agreement cannot be amended. The House is scheduled to vote Thursday on the bill. Senate action will take place in 2020, said Majority Leader Mitch McConnell (R-Ky.), after his chamber finishes the impeachment trial of Trump.

USMCA good for the economy… The Congressional Budget Office (CBO) estimates that the USMCA will increase U.S. government revenue by $2.97 billion from fiscal 2020 to 2029, with the boost coming from higher expected duty revenue on car and truck parts that do not meet stricter rules. The measure is also expected to reduce the federal deficit by $3 billion over 10 years. The International Trade Commission, an independent agency, said in April 2018 that USMCA would “if fully implemented and enforced” would increase real GDP by $68.2 billion, or 0.35%, and add 176,000 jobs to the U.S. economy.

British mills import high-quality wheat from Germany amid crop concerns… British mills have been purchasing more wheat from Germany than they typically do because heavy rain caused major delays in planting the United Kingdom wheat crop this fall. Other areas of the EU, including top-producing France, also struggled to plant amid the soggy weather, but the UK was one of the hardest-hit. The relatively small purchases (30,000 MT to 40,000 MT) of high-quality wheat with 13% to 14% protein signals the millers expect to blend lower-quality wheat.

Ukraine’s wheat exports fading… Ukraine exported 5 MMT of grain in November, a 300,000-MT decline from the month prior amid a slowdown in wheat shipments, the analyst APK-Inform reports. Wheat exports slid from 2.6 MMT in October to 1.7 MMT in November. On the other hand, corn shipments climbed from 2.3 MMT in October to 3.1 MMT in November.

Light demand for wheat at latest Chinese reserve auction… China sold 50,599 MT of 2014 through 2018 wheat at its latest reserve auction, which represented just 1.7% of the total that was offered, the country’s trade centre reports. The reserve wheat sold for an average price of 2,321 yuan ($331.74) per metric ton.

House to hold separate votes on Trump impeachment articles… The full House will debate and vote separately on two articles of impeachment against Trump today, under a process set up by the House Rules Committee on Tuesday night. Trump laid out his defense against charges he abused his power and obstructed Congress while also ridiculing Democrats’ allegations. He accused House Speaker Nancy Pelosi (D-Calif.) of turning the House into a medieval “star chamber” in pursuit of his impeachment, lashing out at the speaker in a blistering, six-page letter and vowing her party would be punished by voters in the 2020 election.

Latest FJ Pulse poll shows rural support for president is climbing… Eighty-two percent of the 1,225 farmers and ranchers who responded to the latest Farm Journal Pulse poll indicated they either approve or somewhat approve of the way Trump is handling his job as president. That’s up four percentage points from last month’s survey and an all-time high for the poll. Breaking the numbers down a bit further, 61% say they strongly approve of the way Trump is handling his job. Just 17% of those surveyed indicated they either somewhat or strongly disapprove of the way he is handling his job, with 1% falling in the “not sure” category. The poll was conducted Dec. 13-16, just ahead of the House’s planned vote on articles of impeachment.

Not clear EPA will come forward with final 2020 biofuel, 2021 biodiesel levels yet this year… Work within the Trump administration on the final Renewable Fuel Standard (RFS) levels for 2020 renewable fuels and 2021 biodiesel continues, with a flurry of meetings. National Economic Council Director Larry Kudlow has been meeting with various stakeholders. And there are some nine meetings that have taken place or are scheduled to have been held on the topic at the Office of Management and Budget (OMB), with two of them scheduled for Jan. 6 and 7, 2020. That suggests EPA’s regulatory guidance that the final rule would be issued yet this month may not happen.

Chinese pork prices edge lower again… The average price of pork in an index covering 16 provincial regions tracked by China’s ag ministry stood at 44.13 yuan ($6.31) per kilogram for Dec. 9-13, which is a 1.8% drop from the week prior. This marks the fourth week in a row prices have retreated, as China’s pork sector attempts to rebuild in the wake of a major African swine fever outbreak. China has also been working to shore up supplies ahead of its Lunar New Year holiday via auctions of state reserves and increased imports of pork and beef.

Boxed beef values plummet… Cattle futures were unable to hold onto early gains Tuesday and fresh news is likely needed to push the market another leg higher. Boxed beef values tumbled Tuesday, with Choice plunging $4.27 and Select dropping $2.04. That narrowed the Choice/Select spread to $9.34, a dramatic retreat from the $37 spread notched just a few months ago and perhaps a warning signal of lagging marketings. The 40-day moving average and the extended trendline mark support, while the highs of the past two days mark resistance.

Futures’ premium to cash again a source of pressure… Lean hog futures posted a mixed day of trade, with nearbys settling 5 to 65 points lower and deferreds notching slight gains. Nearby contracts were pressured by their double-digit premium to the CME lean hog index, while deferred months continue to see support from hopes of strong pork shipments into China. The pork cutout value dipped 75 cents Tuesday. Picnics climbed $7.59, but all other cuts fell. Cash hog bids edged 6 cents higher on Tuesday.

Overnight demand news… Turkey provisionally purchased around 300,000 MT of animal feed barley from optional origins in a series of tenders Tuesday. Japan received no offers in its simultaneous buy and sell auction in which it was seeking 120,000 MT of feed wheat and 200,000 MT of feed barley.

Today's reports: