Ahead of the Bell: Increased Global Trade Concerns Offset Rain-Delayed Planting

Posted on 05/31/2019 8:01 AM

Grain Calls 

Corn: Down 9 to 11 cents
Soybeans: Down 5 to 7 cents
Wheat: Down 6 to 10 cents

General Comment: Grains and soybean selling off a bit following the weakness in global markets stock and commodity markets as fears President Donald Trumps latest tariffs on Mexico last night that involve something non-economic. The perception this morning is that the U.S. is arbitrarily using tariffs to change government policies and ignoring prior trade accords, something that will damage the global standing of the U.S. as a reliable trading partner. On Thursday, Chinese Vice Foreign Minister Zhang Hanhui said deliberately provoking trade disputes is “naked economic terrorism, economic chauvinism, economic bullying.”

Last night in a surprise move, Trump said he will impose a 5% tariff on all Mexican goods, taking effect on June 10, if the country does not stop immigrants from illegally entering the U.S. The White House warned that the levy could rise as high as 25% by Oct. 1 if the issue is not remedied. A 5% tariff on those products would amount to a tax increase of more than $17 billion, with major consequences for American consumers and businesses. Mexico quickly fired back, vowing that tariffs would not go unanswered. The Mexican peso weakened by as much as 3% as investors mull the long list of goods that would be hit by the move. More important, the Mexico tariffs dims the prospect of a trade deal with any nation as the president shows he is willing to arbitrarily impose punitive trade measures.

Meanwhile, China's Commerce Ministry said on Friday that it will draft a list of foreign companies, organizations and individuals that it deems "unreliable" for Chinese companies. The move, which does not single out any countries or companies, comes amid U.S.-China tensions that have sharply escalated since Washington put Huawei on a blacklist that effectively bans U.S. firms from doing business with the Chinese telecommunications equipment giant. The "unreliable entities list" will apply to those who flout market rules and the spirit of contracts, block supplies to Chinese companies for non-commercial reasons and "seriously harm the legitimate rights and interests" of Chinese companies. Earlier this week, China moved to restrict exports of rare earth minerals to the U.S. The editor of a ruling Communist Party newspaper said authorities in Beijing plan a “major” retaliation against the U.S. The news comes as economic data continues to show a worse-than-expected performance, with manufacturing Purchasing Managers Index falling further below 50, signaling a contraction in China’s economy.

China's consumers are fretting over soaring fruit prices as poor domestic harvests and higher tariffs on U.S. imports take a bite out of supplies at a time when income growth is slowing in a cooling economy. The average national wholesale price of Fuji apples - the most popular variety in China - rose more than 75% this week from a year ago, data from the Ministry of Agriculture showed. Aksu apples and Korla pears sold at Jiangnan market – one of China's biggest fruit and vegetable wholesale markets - jumped 90% and 60%, respectively, in May, according to Reuters calculations based on data from the market in Guangzhou city. 

The weather front remains negative for planting progress and positive for prices. The central and western Midwest need significant dry and warm weather and that is not in the cards during this coming two weeks. There will be opportunity for field progress, and some will certainly get completed around scattered showers in the next five days, but greater rain late next week and into the following weekend will hinder that progress enough to raise doubt about how much fieldwork will be done by June 15, according to World Weather Inc. After the surplus soil moisture is removed there will still be need for more drying to get the ground firm enough to support farming equipment. There is enough ambiguity in the forecast late next week that both bulls and bears will be tentative about establishing new position ahead of the weekend.

USDA daily export sales reporting service did not report any new large export sales.

Corn: Since the end of March, December corn have rallied more than 16%, the biggest percentage gain for the period ever even with today’s sell off. Corn export sales in the week ended May 23 showed 906,800 metric tons (MT) of old-crop sales and 76,500 MT of new-crop sales. Old-crop sales topped estimates for 350,000 to 650,000 MT and were up 94% from the prior four-week average. Much of the sales were late reporting of 591,500 MT announced to Japan. Mexico was the second biggest buyer last week.

Soybeans: Futures are sliding with the corn market weakness. USDA reported 455,800 MT sold for delivery this season and only 22,000 MT sold for new-crop delivery. Old-crop sales were just above the top end of trade estimates and included 135,700 MT to China, most of which was changed from unknown destination.

Wheat: futures on the defensive with world market angst on global trade. USDA’s weekly Export Sales report showed 153,000 MT sold for old-crop and 411,800 MT sold for new-crop. Sales were better than expected. Recent dry weather in Argentina gave momentum to wheat planting for the 2019-20 season, which began last week and would cover 6.4 million hectares, the Buenos Aires Grain Exchange said yesterday. As of Wednesday, farmers had planted 7.7% of the planting area. But it remains very wheat in the north and that will slow seedings into early June.  

Livestock Calls:

Cattle:  Steady to lower

Hogs: Mixed

Cattle: Futures seen lower to start after closing sharply lower to limit down on Thursday. Wholesale beef prices were mixed yesterday on moderately active sales. Choice cutouts rose 5 cents while Select fall $1.12. Futures dive weakened average cash bids to about $115.37 yesterday, that’s up just 3 cents for the week after earlier expectations for higher prices. Futures are at a large discount to the cash market and that should help to stabilize the losses as the month comes to an end. Weekly export sales showed 21,600 MT sold in the week ended May 23, down 11% from a week earlier but up 14% from the prior four-week average. Hong Kong, Japan and South Korea were the best buyers. 

Hogs: Futures seen mixed, The Trump administration’s decision to raise tariffs on Mexico sours relations between the neighbors and lowers the odds the U.S./Mexico/Canada Agreement will be signed anytime soon. The market will find support today from the Weekly USDA export sales report. Net sales last week rose 18% to 54,700 MT from a week earlier. China bought 39,100 MT and Mexico purchased 8,900 MT. China shipments of pork last week were 4,200 MT and Mexico took 5,500 MT. The national cash hog prices rebounded $1.36 on Thursday, led by a $1.76 gain reported in Iowa/Minnesota. However, fresh pork cutout values fell $2.63 led by steep drops in bellies and ribs. Today, China reported it detected African swine fever (ASF) in pigs being illegally transported to the southwest province of Guizhou.

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