- Chicago has fallen on renewed selling as traders generally expect/fear President Trump to apply $50 billion of tariffs against China on Friday. The media campaign for positive US trade balances by the administration along with insider news reports from agencies like Politico, has spurred expectations. We note that soybean prices have been compressed by $.85/bu by the China trade tariff fears which is further cutting into US farm income. Corn and wheat have followed the demise of soybeans, but since China is not a big importer of either grain, it’s a “me too” price reaction. We have no way of knowing whether President Trump will impose $50 billion dollars of tariffs following just three meetings of negotiation with China. However, China has pledged to QUICKLY retaliate against a host of US ag goods which worries Midwest farmers. We would note that spot Chicago soymeal has fallen back to $347/ton which fills an open chart gap left before the dire Argentine drought. The fear of China trade tariffs has been an anchor on Chicago. Bullish world balance sheets for corn/wheat have not offered solace.
- We would remind that Trump has promised compensation. Questions are circulating whether that Trump tariff compensation will be in the form a direct cash payment, or the CCC (Commodity Credit Corporation (CCC) is a wholly owned US Government corporation that was created in 1933 to “stabilise, support, and protect farm income and prices”) buying US ag goods and storing them like what occurred following President Carter’s embargo against Russia in 1980. (Although we doubt this is either realistic or feasible). Historically, the fairest way to support farm income has been for CCC to secure US farm goods and store them (to sell back to China in future date). CCC buying commodities raises the ag market value to all producers. Trying to gauge damage/compensation to individual farmers is an inexact, tiresome and almost an impossible task. We have no way of knowing when/where or what the administration will announce on a program of compensation. But, as Chicago has fallen sharply in the trading sessions leading up until Friday’s potential tariff announcement, farmers are anxious to hear compensation program details. We would note that as US soy prices dive, it benefits Chinese buyers/ importers. A 25% retaliatory tax by the Chinese allows their buyers to secure ag products across the world at a cheaper price. This benefits China, and we are sure that the Trump Administration is against that. The big loser would be the US farmer, who has already seen their net income fall 50% since 2013.
- The WASDE balance sheets of Tuesday reflected falls in 2018/19 world wheat, corn, and soybean end stocks. And most argue that Black Sea wheat/corn crop forecasts have further to fall. Tariffs aside, there is a grain bull story.
- The midday weather forecast is little changed from the overnight solution and is similar to the EU model. A ridge of high pressure progresses slowly east over the next four days to a mean position across the Midwest. This ridge causes warm to hot Central US temperatures with highs ranging from the upper 80’s to the upper 90’s into next Wednesday. Rains will fall around the ridge with active showers noted across the Dakotas and the Gulf States. An upper level trough compresses the Midwest ridge southward late next week allowing for improved showers across the N Midwest. A tropical wave causes moderate to heavy rains across the Plains which will slow the US HRW wheat harvest. However, this moisture will aid summer row crops. The clouds here keep temperatures at seasonal 80’s/90’s. The ridge does rebuild in amplitude in the 11-15 day period and likely returns to the Plains/W Midwest.
- Trade politics are impossible to forecast or trade. We have no guess on whether tariffs are on or off against China. The market trades like they will occur, but we doubt that decision has been made, our view is that it is 50:50. Current Chicago prices are too low based on the WASDE balance sheets, assuming the US does not seek a China trade war. All bets are off until we see the outcome of tariff news likely to be released on Friday.