Ahead of the Open: Corn, Soy May Correct Some of Thursday's Tariff Tumble

Posted on 08/02/2019 7:59 AM

GRAIN CALLS:

Corn: up 2 to 4 cents
Soybeans: Up 3 to 5 cents
Wheat: up 1 to 3 cents

General Comment: Commodity markets including the grain are slowly recovering a portion of losses sustained Thursday following President Donald Trump’s tariff threat against China after talks this week in Shanghai did not meet his expectations for progress.  

The corn and soybean markets have erased most of the yield risk price premiums and may trend sideways into the Aug. 12 USDA Crop Production Report. This is USDA’s first survey-based estimate but this year the government will only survey farmers and wait until September to take field measurements. USDA also resurvey 14 states for planted and harvested acreage forecasts after the June report did not reflect final decisions because of the rain-delayed plantings

The U.S. Midwest weather forecast has below average temps over the next 10 days with less than average rainfall. Organized rainfall for the end of next week has been removed. It won’t be completely dry but not as wet as forecast earlier this week when prices were on the defensive. Weather leans neutral to slightly positive for market prices trends today.

Thursday’s player sheet estimated that funds were net sellers of 9,000 contracts of SRW Wheat, sold 29,000 corn futures and net sold 13,000 soybean futures. Funds are probably getting close to flat in SRW wheat, still long about 50,000 futures and net-short as much as 70,000 soybean futures.

Trump said Thursday that he will add a new 10% tariff on $300 billion of Chinese-made products on September 1, which would effectively put a tax on all Chinese goods coming into the United States. Trump said in remarks to reporters at the White House that he might still ratchet tariffs up to 25%, as he's previously threatened -- or even higher.

Needless to say, China has promised a response, without elaborating what measures they would take if the new tariffs are introduced on Sept. 1. China’s top leadership have some big decisions to make. Do they go forward with the next round of talks planned for this month and next? Or do they respond with tariffs of their own, as they have done in the past? Should they make concessions in a bid to stave off the latest threat from Trump, or walk away from negotiations altogether?

The U.S.-China Business Council (USCBC) said Thursday that U.S. President Donald Trump's plan to impose more tariffs on Chinese imports will not facilitate an agreement but lead to more difficulties. The group was disappointed that the additional tariffs were announced after both sides considered said they were constructive, and that another meeting of negotiators would take place in Washington D.C. in early September.

The U.S. action will not make China agree to a deal soon but push it back, according to Hu Xijin, the editor-in-chief of a state-media newspaper. Beijing could now scrap its recent goodwill gesture to buy oilseeds, grains and cotton unveiled before the latest round of talks. Earlier deals that have already been agreed upon yet not finalized also could be at risk.

The U.S. economy added 164,000 jobs in July, as hiring continued at a steady clip despite a trade war with China and a global slowdown, the government said this morning. Just two days after the Federal Reserve moved to ward off economic snags by paring interest rates, the monthly jobs report signaled that the labor market was maintaining its energy during a record-long hiring streak

Meanwhile, President Trump will make an announcement on EU trade at 12:45 p.m. CT, according to the White House's daily schedule. Trump previously threatened tariffs on EU cars, food and alcohol, and a deadline for talks was expected to come due in November. Adding to the tensions, Brussels and Washington have remained locked in disputes over their aviation giants — Airbus and Boeing.

U.S. Trade Representative Bob Lighthizer will conclude two days of talks today with Japanese Economy Minister Toshimitsu Motegi. The trade negotiations reportedly continue to make progress and should soon yield results, including agriculture trade.

U.S. international trade data are also set to be released, which will give an indication of the health of the American trade balance.

USDA daily export announcement service said private exporters did not report any new large sales in the past 24 hours.


Corn: Futures opened slightly higher and have held overnight gains. The market will likely be test when Futures reopen this morning. Slow exports remain a weight on price rallies. Brazil said July corn exports were a record 6.317 million metric tons (MMT) and ethanol exports jumped.  Meanwhile, the condition of the French corn crop, which has faced a heatwave and dry conditions this summer, continued to worsen in the week to July 29, with 61% in good/excellent condition against 67% a week earlier, FranceAgriMer said on Friday.

Soybeans:  Soybean futures are traded both sides of unchanged overnight after opening slightly higher. Prices are above the opening and early support at the overnight lows at $8.62 ¾ may be key to how far this consolidation may carry today. It was interesting to see China's soymeal futures rise more than 1.6% overnight following a U.S. plan to impose tariffs on additional Chinese imports

Wheat: Futures seen are following corn slightly higher in consolidation of yesterday’s sharp declines to a 10-week low.  The market probably will need to see some fresh evidence of improved global demand for U.S. supplies to sustain a recovery. France’s soft wheat harvest had reached 87% by July 29 against 63% the previous week and 99% by the same stage last year, FranceAgriMer said.

LIVESTOCK CALLS:

Cattle: Mixed
Hogs: Steady to weak

Cattle: Futures seen  mixed with a firm undertone today. Cash steer sales this week have average $113.41, down from $113.56 last week but sales have been light and feedlots are holding out for more with marketings very current and overall beef demand good. Beef cutouts on Thursday were mixed as Choice gained 70 cents and Select fell 35 cents on light business. Slaughter this week is 651,000 head, unchanged from a week ago and up 11,000 head from a year ago.

Hogs:  Lean hogs tumbled yesterday in response to the USDA’s weekly export sales report showing China cancelled some prior purchases for both 2019 and 2020 and the new threat of U.S. tariffs that trade heightens tensions. Spillover selling and a $2.36 drop in the average national cash hog prices Thursday will weight on early trading.  The fresh pork cutout values rose 24 cents and slaughter the first four days of this week is down 28,000 head from a week ago but still up 52,000 head from a year earlier.

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