Ahead of the Open: China Trade Deal Still Weeks Away, Keeping the Bearish U.S. Grain Supply Story in Play

Posted on 04/05/2019 7:24 AM

Grain Calls

Corn: Down 1 to 2 cents

Soybeans: Down 4 to 6 cents

Wheat: Down 3 to 5 cents

General Comment: Global stocks and the dollar are slightly higher Friday on cautious optimism on a U.S./China trade deal after President Xi Jinping said China is pushing for a rapid conclusion to talks. But grains and soybeans are defensive and impatient after President Donald Trump said a deal was probably still four weeks away. Trump declined to say what would happen to U.S. tariffs on $250 billion worth of goods as part of a deal. China wants the tariffs lifted, while U.S. officials are wary of giving up that leverage.

Still, both sides are claiming progress after talks in Washington yesterday with more negotiations today. The U.S. President is promising a “monumental” agreement, while China’s top negotiator touted a “new consensus” on the text. Among the details the two sides are discussing is a 2025 deadline for China to meet commitments made as part of any pact. World Trade Organization chief Roberto Azevedo warned in an interview that a deal could prompt challenges from other members if they feel it unfairly hurts them.

China’s long approval process for genetically modified (GM) crops is one of the sticking points in U.S./China trade talks, Reuters reports citing two sources with knowledge of the talks. China did approve several GMO crops for import in January, the first approvals in around 18 months. But this did not address the slow approval process itself.

The U.S. economy added 196,000 jobs in March, suggesting that an unexpectedly weak February was an anomaly amid a record run of hiring. U.S. employment growth accelerated from a 17-month low in March as milder weather boosted activity in sectors like construction, which could further allay fears of a sharp slowdown in economic growth in the first quarter. This is positive for the dollar and will weigh on the grain markets today.

USDA did not report any large new daily sales this morning.  

Corn market is seen pulling back from hard-won gains this week, led in part by firming cash basis amid limited farmer selling. U.S. planting concern persists, with the mid-April forecast even wetter than prior outlooks. But rains in Brazil are beneficial for corn production.  The market is now bracing for Tuesday’s USDA WASDE Report. Traders are looking for U.S. carryover to rise from 1.835 billion bu. to 1.991 billion, according to a Reuters survey.

Soybean futures seen giving back a portion of this week gains. Prices seen opening at $9 support in May but still up 16 cents this week on stronger demand. Stronger cash basis accompanied the futures rally, a positive sign the market wants supplies. Argentina soybean harvesting rapidly moving forward with good yields.

Wheat futures are seen drifting lower, paring this week’s gains tied to a small improvement in demand. Spring wheat is near contract lows set earlier this week.

Livestock Calls:

Cattle: Steady to firm

Hogs: Steady to firm

Cattle futures seen firm ahead of the potentially dangerous major winter storm by forecasts starting April 10. Cattle’s rally Thursday was the market playing catch up with a surge in the lean futures. So far this week, cash action has occurred at steady to lower prices, but weather concerns could help those who held out for better prices. Wholesale beef prices were mixed this week, but demand improve at the lower values, a positive sign moving into the grilling season.

Hog futures may pause today after higher start, consolidating the past three days on limit moves. The national hog price gained $1.15 to $76.37 on Thursday, up $1.48 this week after soaring $30.17 in March.  Cash hogs must lead with June futures at more than a $20 premium. Cutout values jumped nearly $2 on Thursday pushing prices back higher for the week. Movement was sluggish after prices rose more than $20 last month. Much of the rally can be attributed to optimism about U.S. pork shipments to China—especially with negotiators nearing the end zone on a U.S./China trade deal.  

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