- Traders argue that the sky is falling in at Chicago this morning with corn, soybeans, and wheat all sharply lower as traders fear a protracted US/China trade dispute. China has announced that the US is bullying it on trade and that it will not relent with equal retaliation. Moreover, China feels that its chances in a WTO dispute are strong and that it will not engage in negotiations until the US stops its bully tactics. A sharply lower Chicago close is expected, with only moderate short covering ahead of the USDA July Crop Report on Thursday. The USDA report will try to model what the latest Trump Tariffs mean for US export demand, end stocks and the average US farmgate price. China will file another new WTO trade dispute if the Trump Administration activates the tariffs in late August. The earliest that the proposed $200 billion of tariffs can become active in late August. The speed of any WTO dispute will take time, and US farmers are fretting that their being at the front line and watching their incomes rapidly deflate. China is not willing to negotiate unless the US shows restraint in trade. President Trump tweeted this morning that he will support the economic welfare of US farmers , acknowledging that their income has fallen sharply since 2012.
- Neither the US President nor USDA are offering any specifics on how they will support farm income. In fact, Trump in his tweet admitted the trade fight could take time. We continue to be told that USDA is working hard on commodity support programs before the onset of the US 2018 summer row crop harvest. Traders and the industry awaits the details of any program. Brazilian trucking woes persist which is curtailing the movement of grain and soybeans to ports. Few farmers are willing to pay the minimum rate while others fear that negotiating a lower rate could spur legal action by the government. The entire minimum trucking rate has crimped Brazilian corn and soybean movement with the winter corn harvest put off by some amid a lack of storage availability.
- China only has about another $100 billion of US goods that comes into their country from the US. The US’s proposed $200 billion of tariffs is well above what China can retaliate against in terms of goods. Thus, traders are wondering what China means when it says a full retaliatory effort. Speculation is growing that China could target US treasuries or the approval of US companies doing business in China. And China can always adjust their currency lower to blunt the impact of US tariffs. The point is that following the next $100 billion of US tariffs at 10%, the financial risks to the US and world economy are growing. The only way that the US/China trade war is likely to be diffused is with President Trump and Xi negotiating. It’s now at a point where negotiations have to occur at the highest levels of government.
- The midday GFS weather forecast offers a front passing through the Upper Midwest on Friday and the weekend producing 0.25-1.00” of rain. The front crosses through the rest of the Midwest Sunday/Monday. The rain tails off to 0.25-.75” with a few locally heavier amounts across the E Midwest. Seasonal temperatures push south with seasonal upper 70’s and 80’s as extreme heat abates early next week. A low pressure trough holds across E Canada which retrogrades a ridge of high pressure westward. This creates a ridge/trough pattern that slowly pushes east with time. This strongly hints that temperatures will turn warm to hot again with limited rainfall. Our thoughts are that heat will return after a brief spate of cooler weather after July 20. A warm and mostly dry weather pattern returns.
- The market fears that the US/China trade war will become protracted. However, following the emotion of the day with USDA’s latest report due on Thursday, the market will lose its emotion with short covering to spark a rally. However, a lasting Chicago rally requires US/China dialogue and/or adverse Central US weather. We see additional downside price potential as limited to another 15-30 cents in soybeans and 5-15 cents in corn and wheat. This is now not the place to turn bearish with lows nearing in our opinion.