Ahead of the Open: Trade War Intensifies Amid Rising World Inventories

Posted on 05/13/2019 7:49 AM

Grain Calls

Corn: Down 5 to 7 cents
Soybeans: Down 11 to 14 cents
Wheat: Down 3 to 5 cents

General Comment: The commodity and global stock markets are accelerating lower this morning after China announced it will be raising tariffs by 5% to 25% on about $60 billion of U.S. goods. China may stop buying ag products, according to the editor of one China publication.  Prices were already sharply lower after failed Sino-U.S. trade talks last Friday blunted risk appetite. The United States and China appeared at a deadlock over trade negotiations as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any "bitter fruit" that harmed its interests.

The trade war between the world's top two economies escalated on Friday, with the U.S. hiking tariffs on $200 billion worth of Chinese goods after President Donald Trump said Beijing "broke the deal" by reneging on earlier commitments.  U.S. officials are expected to announce details of their plans to impose a 25% additional tariffs. Trump's weekend tweets taunted China on the trade talks.  he said it would be wise for China to “act now” to finish a trade deal with the U.S., predicting that “far worse” terms would be ahead for them after what he predicted would be his certain re-election in 2020.  Chinese state media blamed Trump for the impasse and emphasized the Asian nation’s economic resilience. Three main differences remain in China-U.S. trade talks, including the removal of all the additional tariffs, China's official state news agency Xinhua said on Saturday.  Another difference is on "realistic" trade purchases, Xinhua added.

Trump in tweets last Friday promised to protect farmers, including a plan to buy surplus agricultural products with taxpayer dollars and send the goods abroad as humanitarian assistance. Ag Secretary Sonny Perdue said he is working carefully on a plan and will submit it to the president within “a few days to a couple of weeks.” Perdue said implementation of the program will take time, as the U.S. has a large stockpile of grain and oilseed.

A classic setup for heavy rain begins during the May 17-21 as numerous storm systems interact with a warm and muggy air mass.  The exact onset of forthcoming storm clusters will take another day or two to determine, but likely begin in the Plains and northern half of the Corn Belt on Friday, then elsewhere next Sunday to Monday.  Until then, scattered showers focus near the Corn Belt and Northern Plains throughout the week, while the southern half of the Delta and much of the central and southern Plains stay dry for 5 to 7 days, and all areas turn much warmer. Pesky, light rains will slow planting progress from Nebraska and South Dakota to Ohio this week. This wet pattern could last until early June as this pattern shift will keep pumping storms in off the west coast and that will collide with warm, muggy air in the southeast and keep the Midwest wet.   

Traders are looking for corn planting to rise to 33% to 36% completed as of Sunday, up from 23% a week ago but well below the prior five-year average near 69% done for the date. Soybean planting probably rose to 13% to 15% completed this week, up from 6% last week and 25% average this week. Spring wheat seeing may have advanced to 34% to 36% done this week, up from 22% last week but down from 70% on average for this week the past five years. 

Friday’s weekly CFTC Commitments of Traders report showed that managed money was net short 82,146 contracts of Chi wheat, down 1,356 contracts; short 282,327 corn, down 24,372 contracts; and short a record 160,553 soybean futures and options, up 12,027 contracts. When combining fund managers’ net positions in CBOT corn, wheat, soybeans, soybean meal, soybean oil, along with HRW and spring wheat, the overall net-short reached 700,460 futures and options contracts as of May 7, up from 683,501 a week prior, which was the previous record

The daily USDA export report for large sales did not report any new business this morning.

Corn market seen opening down near contract lows set on Friday when USDA said U.S. and world inventories would be larger than expected. However, the planting window this week is smaller than expected and that should help to bring in some bargain buying. Right now, the markets are paying more attention to the failed talks than the planting struggle.

Soybeans futures are leading to the downside amid the increasing U.S./China trade relations with no new talks planned. World and U.S. inventories are projected at record levels in 2019/20, the USDA forecast on Friday.

Wheat futures seen following the corn and soybeans lower. Rains may aid winter wheat crops in parts of Europe and the Black Sea region.  However, hot, dry weather is hampering crop stands in Russia and nearly half of Australia’s wheat remains very short of moisture. More rains still needed in Canadian Prairies for spring seeding.

Livestock Calls:

Cattle:  Steady to weak

Hogs: Steady to weak

Cattle futures seen lower on further weakness in wholesale beef prices for a second straight week. Choice beef fell $6.25 last week and Select fell $5.83. Most packers will be looking to big lower for cash supplies this week, unwilling to give up current strong margins.

Hog futures seen steady to weak amid U.S./China trade talk failure. The national average cash hog price rose 28 cents on Friday to $80.80 and up $1.86 last week.  Pork cut out values rose $4.15 last week. The strength in cash markets should help to put a floor under prices amid rising Chinese demand for global meat imports. Hong Kong has reported its first case of African swine fever (ASF), and China responded by suspending the transport of live pigs to the city, the South China Morning Post reported over the weekend.  Vietnam has culled more than 1.2 million pigs since ASF was first detected there on Feb. 1, the country’s government detailed today. The virus has spread to 29 provinces, including Dong Nai, which supplies around 40% of the pork consumed in Ho Chi Minh City.

Add new comment