After the Bell: Grains, Soy Extend Losses on China Trade Tensions

Posted on 05/09/2019 4:06 PM

 CornCorn futures closed sharply lower and near session lows. July futures fell 11 cents to $3.53 ¼ while December futures fell 9 ½ cents to $3.72 ¾. Prices fell on uncertainty about the fate of U.S./China trade talks today ahead of the U.S. raising tariffs on China imports on Friday morning. US and Chinese negotiators will attend a dinner together just hours prior to the midnight tariff deadline. The odds of a deal have been in retreat since Sunday, pushing prices lower. The best planting window of the season begins Friday and may last until May 17 before soaking rains return across the much of the Midwest and Plains.  Besides any comments from tonight’s dinner the focus for Friday’s trade will the USDA monthly supply and demand updates for the U.S. and world for 2018-19, and the first estimates for the 2019-20 season. Few expect any positive news and that could lead to some surprises, especially with funds still holding near-record short positions.  

Soybeans: Soybean futures closed down about 15 cents today after setting new contract lows. Nearby soybean futures set 10-year lows today. Meal futures also set new contract lows today with the nearbys down around $3.50. Bean oil closed down 37 points in the nearby contracts and hit nearly eight-month lows. There is keen concern among ag market traders that an escalating U.S./China trade war will slow global economic growth, which in turn would crimp worldwide demand for raw commodities. China’s top trade negotiator Vice Premier Liu will today try to explain and walk back what happened last weekend — in terms of the redlined and changed deal — and ask to see if both sides can return to fruitful discussions. Far less certain is whether China will come forward with an enhanced deal to reach a trade pact on Friday or the weekend. Most are doubtful of a positive outcome, especially after President Trump today said he has an “excellent alternative” to a U.S. trade deal with China. Most took that to mean more tariffs on Chinese imports. Traders are awaiting Friday morning’s USDA Supply and Demand report, which is expected to show old-crop U.S. soybean carryover rising to a record 920 million bu., up from 895 million forecast in April. Next season’s carryover expected near 910 million bu., according to a Reuter’s survey.

Wheat: SRW wheat futures dropped 8 1/2 to 9 1/2 cents, HRW futures fell 4 1/4 to 5 3/4 cents and HRS futures dropped 3 to 4 cents. Wheat futures were pressured by heavy spillover selling in the corn and soybean markets and concerns about the ongoing trade dispute between the U.S. and China. Negotiators from both sides are meeting this afternoon and evening, but many sense a best-case scenario would be a delay in ramping up tariffs by both countries. President Donald Trump said earlier this week he would increase tariffs from 10% to 25% on $200 billion of Chinese goods by midnight tonight if a deal isn’t reached. He also said he would add 25% tariffs on the $325 billion of Chinese goods that aren’t currently taxed “shortly.” China said it would retaliate. The trade jitters outweighed cold weather concerns in the Plains. Freeze watches and warnings are in effect for areas of the Central and Southern Plains overnight. The portion of crops in this area that are headed would be most at risk.  

Cotton: Cotton futures finished 175 to 208 points lower through the December contract. That was off session lows, but in the lower quarter of today’s range.  Cotton futures participated in a broad-based selloff in commodities and the stock market. Traders piled money into the short side of the markets amid trade fears. The U.S. and China will each increase tariffs at midnight if there isn’t a trade deal – or an extension of that U.S.-imposed deadline. Concerns an extension is a best-case scenario roiled cotton futures – and other markets today. Weekly cotton export sales were solid at 235,800 bales for 2018-19 and 56,500 bales for 2019-20. Weekly cotton shipments topped 400,000 bales for the first time in four weeks. In order to reach USDA’s old-crop export forecast of 14.560 million bales, weekly exports must average 408,000 running bales the remainder of the marketing year. Last year the U.S. shipped 372,000 bales per week from this week through the end of July.  

Hogs: June lean hogs closed up $1.45, while the July contract was up 35 cents. Prices finished near their daily highs. July futures dipped to a nearly two-month low early on today, before recovering. Most ag futures markets continue trade on the defensive amid the keen uncertainty in the 11th hour of a deadline imposed by President Trump for a U.S.-China trade deal this week. Both countries are heading for higher tariffs on each other despite talks today in Washington. Trump at a Florida rally on Wednesday said China “broke the deal.” Today Trump said he has an “excellent alternative” to a China trade deal, leading many to believe that alternative is more tariffs on China. 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. This morning’s weekly USDA export sales report showed U.S. pork sales rose 37% to 21,800 MT from a week earlier but remained 46% below the prior four-week average. There were no new sales reported to China, but Hong Kong bought 3,000 MT. China did ship in 3,900 MT of pork last week.

Cattle:  Fed and feeder cattle futures ended mixed with strength in the front months and weakness in deferred contracts. June live cattle rose 88 cents to close at $111.95 and October cattle were unchanged at $107.65. August feeders rose 60 cents to $144.475. Live and feeder cattle have been pummeled by active fund liquidation of record long positions the past three weeks. The rally earlier this year reflected increased export expectations for China. The rising pessimism that a trade deal could be completed this week that would lead to Chinese tariff cuts and more U.S. sales may have peaked today. U.S. and Chinese negotiators will try to ease tensions later today.  U.S. exporters sold 21,800 metric tons (MT) of beef last week, up 30% from the prior four-week average, with South Korea taking about half the total. Beef export shipments jumped 78% from the prior four-week average, with Mexico and South Korea the top destinations.  

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