- Chicago selling was heavy in the opening minutes with the funds pressing corn, soybean and wheat futures. In recent Monday’s, fund managers have been sizeable sellers of raw materials amid the hardening trade stance of the US/China/EU/ Canada and Mexico. The hardening stance of the US on trade is a growing concern with US/China trade tariffs to start on Friday. Both are promising the application of 25% tariffs on a host of goods. The Chinese tariff focus is on US ag ,which will cause fresh financial harm. Trade wars are never positive for broad asset prices. Traders hope that logic/rational thinking come to the fore. Talk that a US legislative brief is being worked on that would call for the US withdrawal from the WTO is worsening the fear. The US Congress will never let the US withdraw from the WTO, but the hardening trade rhetoric shows that the administration is not yet in a negotiating stance. Chicago prices are trading “fear” this morning..
- Chicago brokers estimate that funds have sold 8,000 contracts of wheat, 12,000 contracts of corn, and 5,000 contracts of soybeans. There has been cash connected soymeal demand that has firmed Chicago spreads and allowed the midday recovery in the marketplace. In soy products, funds have sold 900 contracts of soymeal and 3,000 contracts of soyoil.
- The only way that we envision that US/China trade tariffs can be avoided would be Presidential discussions between Xi and Trump. Any negotiations will have to occur at the highest level for any resolution/delay in Friday’s tariffs. The marketplace will be acutely focusing on the hope of negotiation, but it’s a long shot as of today.
- The US export pace for soybeans remains strong, even without China. The Chinese have had a meeting with their soybean crushers/importers and they told them to prepare for a 15-20% decline in soybean imports in the coming year. This would equal to 15-20 million mt decline in imports, a huge amount. China will try to do with less by cutting back on soymeal use and utilising more wheat and corn within their feed rations. Such an abrupt cut in total imports could allow for China to nearly avoid US soybeans in a trade war. The point is that China could take less world soybean imports in the crop year ahead. How much success they have will depend on how hot they run their feed rations. And China can also use their 9-11 million mt of soybean reserve stocks. These stocks plus Brazilian imports could cover their demand through to October.
- The central US midday GFS weather forecast is warm and drier than normal as a high pressure ridge transferases the Central US in the next 10 days. High temperatures in the 90s/100s will be common across the Plains/ W Midwest throughout the first half of July. Overnight lows will be warm holding in the mid to low 70s. Isolated showers will impact IA, MN and WI late week. Elsewhere, cumulative rainfall into July 13 is estimated in a range of .25-.75”. Draws in soil moisture lie ahead and crop ratings should decline in the next few weeks. Stress will be building on Midwest crops.
- All eyes are on US trade policy. No concrete progress has been made, and in fact, the lack of transparency is frustrating. The US is trying to bully other nations into accepting uncertain terms. US farmers are losing hope amid negative margins, and are uncertain as to what the end game is. Chicago markets are not following traditional fundamentals, otherwise wheat and corn would not be pacing the decline. The focus is all on trade and that avoidance of US ag products will be the net result.