Ahead of the Open: China Trade Deal Skepticism Depresses Grain Markets

Posted on 01/16/2020 8:00 AM

Grain Calls

Corn:  Down 3 to 5 cents
Soybeans: Down 3 to 5 cents
Wheat: Down 6 to 9 cents

GENERAL COMMENTS:  Grain markets are sinking today after the U.S. and China signed the historical new trade deal on Wednesday. March soybean and corn futures broke near-term support and wheat is following lower in response to rising skepticism on how much U.S. Ag goods China will buy and when. Some worry that except for soybeans, pork, dairy products and other table-ready food items, China may wait until after U.S. 2020 fall harvest to begin to buying bulk commodities including soybeans, wheat and corn.

Market bears want to focus on elements of the Phase 1 trade deal with China that had been known for quite some time, such as the scaling up of ag purchases over the two-year period, China’s insistence that purchases be based on U.S. commodities being competitively prices relative to other world suppliers, and the fact the U.S. leaves tariffs on roughly $370 billion worth of Chinese goods in place until Phase 2 is completed. A senior Trump administration official said China will need to issue waivers or adjustments to tariffs to meet its buying commitments. China did not lift all its tariffs largely because the agreement leaves in place U.S. tariffs on about three-quarters of Chinese imports

China did make concessions on regulations and phyto-sanitary rules that should help to boost U.S. pork, beef, poultry and dairy exports.

The South American weather forecast for Brazil has not changed with rains seen falling through much of the region over the next 10-day period. The Argentine weather forecast turns dry through the upcoming weekend with rains returning by midweek next week. The non-threatening forecasts also is limiting buying interest today.

The U.S.-Mexico-Canada Agreement (USMCA) is expected to be approved by the U.S. Senate easily today in a bipartisan victory. The chamber took the measure up Wednesday following approval by the remaining four committees that were tasked with approving the deal. That will send the implementing legislation to President Donald Trump who will sign the measure next week. The deal is a long-term positive development, but passage has been expected. 

USDA weekly export sales were better than trader expectations last week for wheat, corn and soybean meal. Net wheat sales rose to 650,600 metric tons (MT) in the week ended Jan. 9, up 32% from the prior four-week average. Corn sales increased to a four-week high at 784,800 MT, up 4% from the prior four-week average. Soybean meal sales rose to a marketing-year high at 375,000 MT. Soybean sales rose to 711,500 MT, up 3% from the prior four-week average and toward the top end of trade estimates for 400,000 to 800,000 MT of new business. China bought 216,600 MT but that included 132,000 MT switched from unknown destinations.   

The U.S. Department of Agriculture’s daily export sales reporting service reported private exporters sold 180,000 MT of soybean meal for delivery to the Philippines during the 2019-20 marketing year.

Corn: March corn futures broke below the 100-day and 40-day moving average last night, touching $3.81 ½. Last Friday’s spike low after the USDA crop reports at $3.76 ½ is key support. Mexico’s Supreme Court on Wednesday ruled against a three-year-old modification of a fuel rule that would have allowed up to 10% ethanol blends in gasoline nationwide, excluding the country’s three biggest cities.

Soybeans: Futures opened higher last night after the double-digit drop yesterday, but gains did not last long and prices drifted lower this morning. March prices broke below the 40-day and 100-day moving averages with next support at $9.21 ¼, the 200-day moving average. NOPA members crushed 174.8 million bu. of soybeans during December, handily topping expectations for crush to come in around 171.6 million bu. of soybeans and shattering the previous December record that was just shy of 171.8 million bu. set last year. Last month’s crush was the second largest on record for any month. However, soyoil stocks surged more than 21% in December to 1.757 billion lbs., marking an eight-month high.  

Livestock Calls
Cattle: Steady to firm
Hogs: Steady to firm

Cattle:  Futures seen supported by hopes for new Chinese purchases. However, wholesale beef slipped lower Wednesday, with Choice down 23 cents and Select down 63 cents on moderately active sales. The Fed Cattle Exchange sold about 400 cattle at steady to firm prices on Wednesday’s weekly electronic auction, a positive signal for at least steady cash trade this week. Beef export sales in the week ended Jan. 9 were 17,800 MT. Shipments last week were 17,350 MT, the best in five weeks.

Hogs: Futures will be steady to firm on speculation China will focus on buying U.S. pork as part of the trade deal signed yesterday because U.S. prices are competitive on world markets. Pork export sales jumped to 38,700 MT last week led by Mexico and Japan buying. China only bought 1,900 MT last week. Shipments last week were 41,500 MT, the most in seven weeks with China taking 16,000 MT. Cash hog prices rose again on Wednesday, with the national average price up 27 cents. Wholesale pork cutout value inches up 36 cents on gains in bellies, picnics, butts and hams. Sales were only modest. That’s a little negative as slaughter the first three-days of this week is up 76,000 head from a year ago.

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