First Thing Today: China May Target Soybeans if U.S. Announces Trade Sanctions

Posted on 08/03/2017 6:41 AM

Good morning!

Renewed selling overnight... Soybean futures dropped another 16 to 18 cents overnight as the market is on edge about trade relations with China and rains are moving across the Midwest. This helped pull corn down around 3 to 4 cents as well. Spring wheat futures are 6 to 7 cents lower, while winter wheat is down 3 to 5 cents. The greenback is slightly higher this morning.

Export sales expectations... USDA will release its weekly update on export sales activity at 7:30 a.m. CT today. Traders expect the report to show corn sales ranging from 500,000 MT to 900,000 MT, soybean sales between 350,000 MT and 750,000 MT, wheat sales of 300,000 MT to 500,000 MT, soymeal sales ranging from 25,000 MT to 275,000 MT and soyoil sales between 5,000 MT and 25,000 MT. These expectations are for both old and new-crop sales combined, with the exception of wheat.

China may target soybeans if U.S. announces trade sanctions... The Trump administration continues to mull action on China regarding intellectual property concerns. U.S. trade officials have long criticized China's IP enforcement regime for failing to stem alleged online piracy of music, films, books, software, and video games. The U.S. Trade Representative also alleges that hackers affiliated with the Chinese government and military infiltrated the computer systems of U.S. companies and stole terabytes of data to provide commercial advantages to Chinese enterprises. China has several counter measures it could take in any official trade spat, including legal constraints on foreign companies and import curbs on specific sectors. Under a draft plan, Bloomberg reports soybeans have been singled out as the top product that can be dialed back, according to people familiar with the matter. Get more details.

Attache believes USDA too high on wheat and too low on corn crop for Argentina... An ag attache in Argentina estimates the country's 2017-18 wheat crop will total 16.65 MMT, which is 850,000 MT below USDA's official peg due to its smaller area estimate. "This will lower exportable supplies," according to the attache. For corn, the post pegs the 2017-18 crop at 40.5 MMT, which is slightly above USDA's forecast. Therefore, the attache estimates Argentina will export 29.5 MMT of corn, which tops USDA's official projection by 1 MMT.

Global food prices climb in July... Global food prices climbed to the highest in 2 1/2 years in July as supply constraints and currency moves pushed up grain, sugar and dairy costs, according to the United Nation's Food & Agriculture Organization (FAO). Its Food Price Index rose 3.9 points last month to 179.1 points. Also of note, FAO cut its global wheat crop forecast for 2017 by nearly 3.3 MMT to 739.9 MMT, due almost entirely to "smaller crops in the EU and Ukraine, where dry conditions are anticipated to reduce yields."

Timeline for farm bill... The House ag panel's goal is to report a new farm bill out of committee by Thanksgiving, with floor debate and votes by the first quarter of 2018. Senate Ag Chairman Pat Roberts (R-Kan.) has asked Senate Majority Leader Mitch McConnell (R-Ky.,) for two days of floor time for the farm bill. Meanwhile, USDA Secretary Sonny Perdue kicks off his five-state "Back to Our Roots" tour today with a trip to Wisconsin, where he will visit the state fair, participate in a farm bill listening session, tour the Hunger Task Force Farm and have a meeting with Blain Supply employees. He'll make stops in Minnesota, Iowa, Illinois and Indiana later on in the farm bill tour.

Timeline for tax reform... House Freedom Caucus Chairman Mark Meadows (R-N.C.) said Wednesday that tax reform legislation needs to reach Trump's desk by Thanksgiving and must be retroactive to the start of this year. Not meeting those goals would blunt the economic impact of reshaping U.S. tax laws, Meadows said at an event hosted by Americans for Prosperity. But a complex tax reform faces several hurdles and lengthy debate ahead.

Sen. Graham: Trump's immigration plan would harm agriculture, tourism... Trump's endorsed plan to reduce legal immigration to the U.S. "would be devastating to our state's economy which relies on this immigrant workforce," said Sen. Lindsey Graham (R-S.C.). "I fear this proposal will not only hurt our agriculture, tourism and service economy in South Carolina, it incentivizes more illegal immigration as positions go unfilled." Graham said the legislation from Republican Sens. Tom Cotton of Arkansas and David Perdue of Georgia, which Trump endorsed, would reduce legal immigration by half. The bill faces high hurdles, especially in the Senate, and is not expected to clear Congress. Read more about the plan.

EIA report shows U.S. imported ethanol for first time since May... Ethanol imports averaged 38,000 barrels per day in the week ended July 28, the first time foreign supply has appeared in weekly data since May 5 and the highest since Sept. 18, 2015, a U.S. Energy Information Administration (EIA) report showed. Inventories declined 3.1% to 20.9 million barrels, the steepest decline since June 2.

JBS hires retired USDA food safety official... Brazilian meatpacking conglomerate JBS has hired former USDA Deputy Undersecretary for Food Safety Al Almanza as their head of global food safety, a newly created position, according to reports. Almaza retired this week after spending nearly 40 years at USDA and his hiring by JBS marks another effort by the company to shore up its reputation in the wake of a food safety scandal that rocked the Brazilian meat industry earlier this year. "I look forward to helping JBS maintain the highest food safety levels in the industry, and putting in place best-in-class benchmarks and safeguards to ensure that our products continue to exceed all industry standards," Almanza said in a statement.

Cash cattle trade gets underway at better prices than trade anticipated... Cash cattle trade started at prices mostly falling in a range from $116 to $117 across the Plains yesterday, which was steady to down just $1 from the week prior. This was much better than traders anticipated, which helped futures to rally into the close yesterday. Followthrough buying is very much a possibility today given futures' discount to the cash market.

Resilient cash hog market... According to USDA's national summary, cash hog bids strengthened across the Midwest yesterday, signaling still solid packing demand. This adds to ideas the dramatic plunge in the cash market futures signal traders are expecting may not occur. Meanwhile, belly prices continue to slide, which weighed on the pork cutout value yesterday. Bellies are down nearly $11 for the week. But movement was again solid.

Overnight demand news... Japan bought 50,080 MT of food-quality wheat from the U.S. as well as 49,665 MT from Canada and 33,180 MT from Australia. Jordan purchased 50,000 MT of milling wheat.

Today's reports:

 

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