Ahead of the Open: China Trade Deal Pessimism Depresses Ag and Financial Markets

Posted on 05/09/2019 8:09 AM

Grain Calls

Corn: Down about 5 cents
Soybeans: Down 6 to 9 cents
Wheat: Down 4 to 6 cents

General Comment: U.S. grain and global markets continue trade on the defensive and volatility is ramping up with U.S. and China heading for imposing higher tariffs on each other despite talks today in Washington. President Donald Trump at a Florida rally Wednesday declared that Beijing had “broke the deal” the U.S. was negotiating with the world’s second-largest economy. A Chinese spokesperson disputed the president’s characterization of events, saying that the country “honors its word.” A delegation from the Asian nation led by top negotiator Liu He is in Washington today for talks, but he no longer has the designation that he’s the special envoy for President Xi Jinping. Investors are not waiting for the result before deciding on their next move, with foreigners dumping China’s stocks this week as Citigroup Inc. warned the threatened increase of tariffs would cut at least a 0.5 percentage point off growth in the country over one to two years. Former Australian Prime Minister Kevin Rudd told CNBC this morning that any assumption in Washington that Beijing is "economically desperate" for a deal is not "well placed."

Any higher U.S. tariffs would apply to products exported from China starting on Friday and not goods that are already in transit, a U.S. trade official said on Wednesday. Impact: This offers U.S. and Chinese negotiators a window of two to four weeks to reach a deal before the bulk of the pain from any higher tariffs hits U.S. consumers and businesses, based on shipping times between the countries.

Heavy rain will continue across southeast Texas and the Lower Mississippi Valley for the next three days. Numerous flash floods are likely. Moderate risk for excessive rain today from the Tennessee River Valley to the eastern Midwest. The weekend looks mostly dry and cool and next week will see just a few spotty and light showers. Temperatures begin to warm next week, and a series of storms then pass from May 17 to 23, producing near to above-normal rainfall.  Some planting will get down next week but with soil moisture at capacity in many areas it may be slow progress.

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

Corn market seen lower and poised to test support on rising China trade tensions and weak exports. USDA said 287,600 metric tons (MT) were sold in the week ended May 2, a new low for this marketing year and 60% below the prior four-week average.  The official government statistician, Conab, estimated the corn crop in Brazil at 95.3 million metric tons (MMT) up from 94.0 MMT estimated in April and up from 80.7 MMT last year. Exports may rise to 31 MMT from 24.8 MMT last season, Conab said.  

Soybeans futures seen trading on the defensive amid growing China trade tensions and weak demand. USDA reported net reductions of 149,100 MT last week. New-crop sales were better with net sales of 295,600 MT, most of which was sold to Mexico.  Soybean meal sales rose 30% from the four-week average. Conab estimated Brazil’s soybean crop at 114.3 MMT, up from 113.8 MMT forecast in April and down from 119.3 MMT last year. Exports may fall to 68 MMT from 70 MMT forecast in April and down from 83.6 MMT last season.

Wheat futures seen lower, following the row crops to the downside. Old-crop sales were slow at just 90,600 MT sold last week. New-crop sales rose to 412,300 MT, slightly higher than trade estimates. The excessive rain across the Central Plains is beginning to move from beneficial to potential plant health issues for some HRW wheat and already threatening SRW quality. The soil is so saturated across Kansas that disease concern is ramping up in some areas.

Livestock Calls:

Cattle:  Steady to weak

Hogs: Weak

Cattle futures seen weaker on lower cash cattle bids and another drop in beef prices Wednesday. Choice fell 86 cents and Select plunged $4.34. Sales were very good as grocers are taking advantage of the lower prices and gearing up for Memorial Day and Father’s Day features.  Choice cuts dropped to the lowest since March 5 yesterday. Look for some support from the weekly export sales report. USDA said sales rose to 24,200 MT, up 46% from the prior four-week average. Shipments jumped 76% above the prior four-week average.

Hog futures seen steady to week amid heighten U.S./China trade tensions. This morning’s weekly export sales report showed pork sales rose 37% to 21,800 MT from a week earlier but remained 46% below the prior four-week average. No new sales were reported to China, but Hong Kong bought 3,000 MT. China did ship 3,900 MT of pork last week. The national average cash hog price was down 34 cents Wednesday, but Iowa/Minnesota gained 43 cents. Wholesale pork cutout values fell 73 cents to $84.94 but still up from $81.99 a week earlier. Consumer inflation in China hit a six-month high in April, led by a 14.4% jump in pork prices from a year earlier. 

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