Ahead of the Open: New Tariffs Take Effect

Posted on 09/03/2019 8:11 AM

GRAIN CALLS
 

Corn: 1 to 3 cents lower
Soybeans: 3 to 5 cents lower
Wheat: 1 to 3 cents lower

 

General Comment: New U.S. tariffs on clothing and other imports from China went into Sept. 1, escalating the trade war in a move expected to squarely hit consumers. China’s retaliation took effect as of 12:01 p.m. Sunday, with higher tariffs being rolled out in stages on a total of about $75 billion of U.S. goods. Higher Chinese duties that took effect include an extra 10% on American pork, beef, and chicken, and various other agricultural goods. Soybeans will get hit with an extra 5% tariff on top of the existing 25%. Starting in mid-December, American wheat, sorghum, and cotton will also get a further 10% tariff. While China imposed a new 5% levy on U.S. crude oil starting from September, there was no new tariff on liquefied natural gas. The resumption of a suspended extra 25% duty on U.S. cars will resume Dec. 15, with another 10% on top for some vehicles. With existing general duties on autos taken into account, the total tariff charged on U.S.-made cars would be as high as 50%. China has also lodged a World Trade Organization (WTO) complaint against the U.S. tariffs. Late word on Monday signaled a Chinese scheduling conflict could scuttle possible face-to-face meetings this month. The Chinese yuan dropped to an 11-year low against the dollar overnight, which makes Chinese goods less expensive in dollar terms.

 

Hurricane Dorian is expected to remain off the east coast of Florida and the Atlantic Coast, and therefore, not do major damage to crop in the region. Midwest weather is expected to be relatively benign with a mix of rains and moderate temps this week. But late-developing crops need sunshine and warmth to push maturity. Traders will keep a watch on a cold front that is expected to move into northern areas of the Corn Belt Sept. 12-14.

 

USDA reported no daily sales this morning.

Corn: In the week ended Aug. 27, managed money accounts increased their net short position in corn futures and options to 94,137 contracts from 56,441 a week prior, according to CFTC data released last Friday. Given trade concerns with China and forecasts calling for mild temps and sporadic rains, funds have no reason to actively cover short positions.

Soybeans: In the week ended Aug. 27, funds increased their net short position in soybean futures and options to 76,047 contracts from 72,432 in the previous week. Like with corn, there’s no reason for funds to actively cover short positions, especially given the escalated trade tensions with China. The cold air blast that’s expected Sept. 12-14 across the northern Corn Belt is the next chance for a weather scare. But barring forecasts for a frost/freeze event during that span, traders aren’t likely to be concerned.

 

Wheat: Funds continue to hold a net short position in the wheat markets. While they mildly trimmed their short stance in HRS futures as of Aug. 27, they are still near record-short. Funds also hold net short positions in SRW and HRW futures. Light frost/freezes hit norther areas of Russia over the long weekend, but the key growing regions in the south were not impacted. Global wheat supplies are plentiful and traders expect export competition for U.S. wheat to build as the marketing year progresses.

 

 

LIVESTOCK CALLS

 

Cattle: Weaker
Hogs: Weaker

Cattle: Live cattle futures posted bearish reversals Friday and are trading near contract lows, with some contracts making new lows. Followthrough selling is expected to start the week amid weakness in the cash market and an escalation of the trade war between the U.S. and China. While China doesn’t buy a lot of U.S. beef, it is caught in the trade war, with an extra 10% tariff being levied against American beef shipments from Sept. 1 forward. Beef packing margins are near record-high, but that hasn’t translated into strength in the cash market. Given the trade concerns and softer cash market, traders have no incentive to be active buyers in futures.

Hogs:  Lean hog futures closed poorly Friday after corrective gains earlier last week. Followthrough selling is expected to open the week amid weakness in the cash market and the escalation of trade tensions between the U.S. and China. Higher Chinese duties took effect Sept. 1, including an extra 10% on American pork. The average national direct cash hog price dropped $2.14 Friday. While packer margins are solidly in the black, they are having no problems sourcing enough animals to keep kill lines full. As a result, the cash market is expected to continue to weaken. The nearly $8 discount October lean hog futures hold to the cash index should help limit seller interest, but won’t encourage traders to buy. 

 

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