Corn: Steady to down 1 cent
Soybeans: Down 2-3 cents
General Comment: It’s USDA report day but all eyes are on Washington where U.S./China negotiations will resume this morning amid rising tensions. USDA releases it first 2019-20 U.S. and world supply and demand estimates and updates the 2018-19 season. Few positive surprises are expected when the data comes out at 11:00 a.m. central time this morning.
As promised, President Donald Trump boosted tariffs on $200 billion of Chinese imports to 25% overnight as the White House seeks to extract trade concessions in the current round of talks in Washington. Administration is also taking steps for an additional $325 billion of Chinese goods to be targeted for tariffs as talks between the two countries continue today after discussions Thursday failed to generate a breakthrough. Talks could continue in the coming weeks even with the increased tariffs in place. One industry group is warning that the higher tariffs could cost 400,000 manufacturing jobs while also putting further pressure on American farmers.
Authorities in Beijing promised to retaliate without providing any details. The first step was to bolster the local stock market, where the tariff escalation was met with a strong rally. The Shanghai Composite Index ended the session 3.1% higher after buying by state funds. Other options open to the country according to Bloomberg is a devaluation of the yuan, halting purchases of U.S. soybeans and energy, and the nuclear option: Dumping U.S. government debt and driving U.S. interest rates higher.
A deal will certainly be more likely if the U.S. gives up trying to strike a grand bargain, Bloomberg’s editorial board writes. Trump’s best bet is to take whatever minor concessions he can get, declare victory and then work through alliances to change China’s behavior, Bloomberg said. Endless tariff-raising will only hurt the economy. Each side has misinterpreted the other’s behavior as weakness, leading them to harden their positions. Trump may not want to upset the stock market much more. China, meanwhile, needs a deal because it needs a steady inflow of dollars to cover its own massive foreign debt.
The European Union intends to keep agriculture off the agenda in its trade talks with the U.S. and continues to support rules-based, open and predictable international commerce, the EU's agriculture commissioner said today. A free trade agreement between the European Union and Japan is the "benchmark and ceiling" for the EU's negotiations with the U.S. for a trade pact, Phil Hogan said.
Ag trade data yesterday signals smaller USDA U.S. ag export forecast ahead. The value of U.S. agricultural exports rose to $12.05 billion in March, up $1.2 billion from February, but imports hit a record $11.94 billion as they rose nearly $2 billion from the February mark. The sharp rise in imports helped trim the U.S. ag trade surplus to just $111 million, the smallest since the U.S. registered an ag trade deficit of $46 million in May 2017.
A planting window opens today and last a week before rains return to the central and western growing regions. Eastern areas may stay dry through May 22. It will remain wet from Texas through the southern Delta and Southeast this weekend and early next week. Overall, the forecast looks a little wetter than forecasts Thursday.
The daily USDA export report for large sales did not report any new business this morning.
Corn market seen steady to weak and sitting just above contract lows set last month amid heighten trade tensions and uncertainty ahead of USDA crop updates this morning. China corn production in 2019-20 may fall 1.2% to 254.15 million metric tons (MMT) from 257.33 MT last season. Imports may rise to 3 MMT from 2.5 MMT this year. China ending stocks may fall 25.7 MMT after dropping 23.5 MMT this year and declining 7.73 MMT last year. While no China deal may not hurt global demand, it does damage the optimism for increased Chinese buying of corn, DDGS and ethanol.
Soybeans futures seen back down testing yesterday’s contract low after trading much of the overnight session. China expects its soybean output to hit the highest level in 14 years in 2019/20, boosted by a plan to revitalize the nation's production of the oilseed. The country will churn out 17.27 MMT of soybeans in the 2019-20 crop year, up 7.9% from the year before, its agriculture ministry said on Friday in a monthly crop report. That would be the most since 2004-05. China, which uses soybeans to make feed for its vast livestock herds, has been pushing to reduce its dependence on oilseed imports from the United States amid mounting trade tensions between the two. China's agriculture ministry expects 86.6 MMT of soybeans to be crushed in 2019-20, flat with levels in 2018-19 as an African swine fever epidemic curbs demand for feed ingredient soymeal. China's 2019/20 soybean imports will come in at a similar level to the year before at 84.9 MMT, the ministry said.
Wheat futures seen weak this morning before the USDA first estimates of 2019-20 U.S. and global wheat production and ending stocks. Weather has been generally good to start the season with small issues largely not enough to significantly curb large global inventories.
Cattle: Steady to weak
Hogs: Steady to weak
Cattle futures seen steady to weaker on declining cash cattle bids this week and further erosion in beef cutout values. Choice fell 54 cents and Select dropped 41 cents. But sales were active for a second day and that bodes well for the outlook into the heart of the U.S. grilling season. Thursday’s weekly export sales report showed 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 weak. The national average cash hog price was up 9 cents yesterday and Iowa/Minnesota gained 47 cents. Wholesale pork cutout values jumped $1.88 cents to $86.82, but sales were slow. Thursday’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 the country did ship 3,900 MT of pork last week.