- The news could not get any more bearish than on the opening with the US and China moving apart on a trade deal with both rattling their sabres with higher tariffs and new threats of tariffs. The worsening trade news has pushed the DOW to a 600-point decline while related stocks like Apple fell to sharp losses. The fear of a widening/lengthy trade war caused fear throughout the financial industry. Grain and soybean markets fell sharply with panic selling likely to be placing a seasonal low this morning. As we stated above, we doubt that the trade news will get any worse (than the opening) with China retaliating on $60 billion of US goods and the US starting a process to place another 25% tariff on $300 billion of additional tariffs (which will take months).
- We note that the new China tariffs won’t start until June 1 while the US’s 25% tariffs on $200 billion won’t start for a few weeks. The point is that both the US and China have left open a door for new talks and a calming of nerves. This is a glimmer of hope that may allow for new discussions. We had bought into the idea from USTR/Trump talk that a trade deal was close. That thinking was in total error as discussions have completely broken down.
- US weekly inspections for the week ending May 9 were; 39.4 million bu of corn, 18.9 million bu of soybeans, and 31.0 million bu of wheat. For their respective crop years to date, the US has exported 1,442 million bu of corn (up 73 million or 5%), 1,199 million bu of soybeans (down 445 million or 27%), and 837.2 million bu of wheat (up 3 million or .2%). Wheat and corn exports were above trade expectations.
- Prevent Plant (PP) discussions are becoming widespread across the Midwest and N Plains amid poor prices and the cool/wet weather. Although PP cut off dates are several weeks in the future, farmers are penciling that PP makes good economic sense if fertiliser has not been applied. Another consideration is farmers can still choose for PP for their crop mixture. Farmers can switch soybean intentions back to corn and receive a larger payout. This means that US PP is likely to not only impact corn, but also soybean seeding as producers calculate their financial options. We have cut our US corn acres to 91.0 million acres with PP estimated at 1.8 million acres. However, should the forecast verify, we estimate that US corn PP could reach 3.8-5.0 million acres which could reduce total US corn production as much as 670-900 million bu. This is area reduction only. Late seeding will also cut yield on the remaining acres arguing that as much as 800 million to 1.2 billion bu of US corn production could be reduced by a cool/wet weather and the poor price outlook.
- The Russian intervention price for wheat was announced and it works back to $185/mt fob. No tonnages were announced, but the Russian intervention price has acted to bottom the Black Sea market in recent years.
- The latest weather model run is cooler/wetter across the NC Midwest than the overnight run. The midday run reintroduces cooler temperatures into the N Plains and the northern two thirds of the Midwest with a general trough/ridge pattern reforming. The confirmed cool/wet weather offers limited opportunity for spring planting progress. The rains start Friday and continue every 2-3 days for the next 10 days. The pattern shows stability which is likely to keep the Central US wet well into early June. This is not the weather pattern that Midwest/Plains farmers desire.
- A seasonal low was likely forged this morning as the trade news reached extreme bearish limits. The market’s focus is now shifting back to 2019 US weather and supply. US farmers report that they are considering taking the PP option on a record number of US corn and soybean intended acres based on 5 years of record or near record yields that elevated their Actual Production History (APH) yields (amid the fear of low new crop bids based on a lengthy China trade war). It is easy to calculate how the US would lose 800 million to 1.0 billion of 2019 corn production amid reduced acres/yield. Even 2019 soy seedings could decline on PP.