After the Bell: Trump Tariff Threat Upends Ag Markets but Prices Bounce Away from Session Lows

Posted on 05/06/2019 2:47 PM

Corn: Corn futures gapped lower on the open and sharply extended losses in overnight trade, but the market was able to take back some of those early losses and settle above opening levels, closing “just” 4 to 7 ¼ cents lower. The July contract settled nearly 9 cents off its low. President Donald Trump’s weekend threat to raise existing tariffs on Chinese goods and to hit imports currently not subject to duties with a tax because trade talks were not progressing quickly enough rattled the markets. It’s unclear whether this will light a fire under negotiators to get a deal done this week or lead to more tit-for-tat trade measures that renew and extend the damaging trade war between the global super powers. Trade talks are still scheduled for this week, but it’s unclear whether China’s top negotiator will make the trip. If not for the trade development, the corn market may very well have moved higher to start the week after rainy weather slowed weekend planting efforts and the near-term forecast remains wet and cool. That points to more slow progress and could result in some corn acres shifting to other crops. Traders expect USDA to report a quarter of the crop had been planted as of Sunday. As the week progresses, traders will also shift more attention to USDA’s coming Supply & Demand Report. Based on inspections data out today for the month of April, we would not be surprised to see USDA scale back its old-crop export forecast. Ethanol use could also move lower, adding to carryover.  

Soybeans: July soybeans lost 11 1/4 cents today, with November beans down 10 1/4 cents. July meal lost $1.20 today and July bean oil fell 23 points. All of the aforementioned contracts set new lows today, but prices did close nearer their session highs, which provided some very modest hope the bears may have become exhausted today. President Trump on Sunday unexpectedly said he would raise tariffs on Chinese goods this week if a trade deal is not reached. The surprise tweet upset expectations both sides were near an agreement to resolve a trade standoff. Still, China today said a delegation is still preparing to go to the U.S. for a new round of talks this week. How this matter plays out in the coming days is very difficult to forecast. But right now the U.S. ag markets are giving it a very bearish read. U.S. soybeans inspected for exports rose to 600,441 MT in the week ended May 2. That was above trade estimates and included 135,194 MT shipped to China. USDA weekly crop progress data this afternoon is expected to show U.S. soybean planting progress at 8%, which is up from 3% last week but still below the five-year average of 14% planted at this time of year. The May USDA crop report this Friday will provide a new crop starting point to U.S. and global supply and demand for the 2019-20 season and updates on this season. The monthly report will take a back seat to the latest round of China trade talks.

Wheat:  Wheat futures ended mixed and well above overnight session lows. July SRW fell ¾ cent to $4.37 ¼ with HRW July futures up 1 ½ cents to $4.03. September spring wheat futures rose ¾ cent to $5.23 ¾.  Wheat prices followed the corn and soybeans sharply lower overnight after President Trump promised to ramp up import tariff rates and potentially add it to other China goods after Friday, if the Chinese don’t come to Washington this week in a deal-making mode.  Going home last Friday, traders were looking for Trump to set a date in June to meet with China President Xi to sign a new accord. Prices probably bounced back on unwinding of long corn/short wheat positions more than any new risk to global crops or improved export demand for U.S. wheat. Temperatures were just below freezing over parts France and Germany Sunday morning, with another chance for a freeze Tuesday morning, but little lasting impact is likely. Forecasts on the international stage call for showers over western Alberta and northern Saskatchewan over the next week for the Canadian Prairies, rains over northern Spain and southern Europe for the next week, rains over western Ukraine for the next week, mostly dry for the next week, scattered showers over the northern Russian grain areas, with the south mostly dry for the next week, and some rain in parts of China. The U.S. spring wheat region looks mostly dry for this week, but with cold temps that may impede any catch-up on planting. The trade will be looking for spring wheat to be 24% planted tonight, versus 13% last week.  Too much rain continues to be a risk for SRW yields and quality.  

Cotton: Cotton futures finished 154 to 213 points lower through the December contract. While the market finished well off its session lows, futures closed in the lower portion of today’s range and far below opening levels. Comments from Trump that tariffs on $200 billion of Chinese goods will be raised from 10% to 25% on Friday weighed heavily on the cotton and other markets today. The timing would suggest Trump wants a deal in principle by Friday after a meeting in Washington. But there are also reports that China’s lead negotiator didn’t get on a plane headed for the United States. If there are more negative reports and rhetoric, cotton futures are likely to face more pressure. If the two sides get a trade deal ironed out by the end of the week or Trump backs off his tariff-increase stance, futures are likely to rebound. Trade issues with China will continue to be the primary price driver in the cotton market – and many other markets. Funds were still long 10,579 contracts of cotton as of April 30. But the nearly 3.23-cent plunge in July cotton futures since then suggests funds have likely liquidated most of their length. If so, they have must now decide whether to move to a short stance.  

Hogs: Lean hog futures prices closed the $3.00 daily limit down across the board today. The trading limit will be expanded to $4.50 on Tuesday. The hog futures market and many other markets today were blind-sided when President Trump on Sunday dramatically increased pressure on China to reach a long-sought trade deal by announcing he will markedly increase U.S. tariffs on certain Chinese goods and a 25% tariff will be applied to an additional goods if a trade deal is not reached this week. As of this writing, Ministry officials in Beijing said a delegation is still planned on travelling to Washington for talks. However, it is unclear whether Vice Premier Liu He will attend, or even whether China is now willing to negotiate with the U.S. It’s very difficult to try to forecast what will play out in the U.S.-China trade talks this week, but any time there is keen uncertainty in a market, it’s usually favorable for the bears. The national average cash hog price fell 6 cents on Friday and was down 68 cents for the week. Slaughter last week rose to 2.382 million head from 2.341 a week earlier. Wholesale pork prices today rose $1.45 on a big gain in bellies. Movement was 95.24 loads. Slaughter last week rose to 2.382 million head from 2.341 a week earlier. Pork sales were sluggish last week and that will need to change to put a floor under pork and cash hog prices.

Cattle: Cattle and feeder cattle futures closed lower but above early session lows. June cattle fell $1.15 to close at $112.275, with August feeders sliding $2.025 to $144.35. The most recent CFTC Commitment of Traders’ report confirmed massive fund long liquidation had occurred as of last Tuesday’s close and it’s highly probable more continued today. Open interest since April 23 fell more than 50,000 contracts through last Friday. Thanks to unexpected global political maneuverings relating to China trade negations, U.S. commodities sold off quickly last night with livestock joining in today. Hogs fell the daily limit. Last week saw a large transfer of ownership of cattle from the feeder to the packer, at 150,000 head. But packers will need to continue to gather inventory as peak slaughter levels for the year will occur between now and early July.  Last week’s slaughter was 670,000 head and the next three weeks are expected to see a repeat or even closer to 680,000 head. Peak seasonal demand, profitable margins and ample supplies of fed cattle are the perfect combination for the biggest kills since 2011. Beef prices were slightly higher at midday, with Choice gaining 59 cents and Select up 14 cents. That’s a positive sign that bigger slaughter levels will be met by strong domestic demand.    

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