- Chicago corn and soybean futures have traded sharply lower in opening trade with fund liquidation being featured. However, end user scale down buying has been noted in wheat, soymeal and corn on the morning break. The volume In Chicago has been huge as everyone hopes that US/China negotiations can avoid a trade war. President Trump tweeted this morning that the US cannot lose with a Chinese trade deficit of $500 billion dollars. US/China negotiations on trade have already started. We would note that the proposed Chinese tariffs will not be put into place until the US implements/activates the $50 billion of proposed trade tariffs. For those tariffs to be implemented there is a process. The US Government 30 day public comment period will end on May 4, with USTR (US Trade Representative) holding a public hearing May 15 with the US Treasury deadline for China investment restrictions being May 21. Final comments are due to the USTR on May 22, with the Trump Administration likely to wait 1-3 weeks before actually announcing any activation of the tariffs. Thus, US tariffs against Chinese goods cannot become active until the closing days of May or June.
- The understanding and hope that Chinese tariffs will not become active until early summer has provided some calm to US ag futures market. Also, the hog market is rallying as traders understand that US pork processor and exporter, Smithfield Foods, won’t be impacted as it is owned by a Chinese company. China is nationalistic as a nation, and it is extremely unlikely that they would tax their own operations. We would also note that Kong Hong does not appear to be involved in the US or Chinese retaliatory tariffs. US beef exports are mostly to Hong Kong in recent months, with US beef trade to the mainland as minimal at around 10 million lbs. There is speculative selling in cattle futures this morning, but we see little tonnage impact from the Chinese tariffs.
- Brazilian soybean cash basis has soared and is currently trading at $1.25- 1.30/bu over, which compares to the US Gulf at 76 cents over. The 70 cent premium for Brazilian soybeans to the US Gulf is pushing non-Chinese soybean demand back to the US. However, it is also possible that China could secure US soybeans off the PNW for quick shipment to China that would arrive in early to mid-May. The odds are low that these beans would be hit with tariffs. Now announced, the US has six months to actually enact its proposed tariffs. The US International Trade Commission has locked into place anti-dumping duties of Argentine and Malaysian biodiesel into the US. Total duties of up to 159% on Argentine and 341% on Indonesian biodiesel makes it almost certain that the imports of these biofuels will not occur.
- Funds are paring their net Chicago long positions to reduce risk as the US/China trade war builds. However, the actual implementation of US tariffs won’t happen until late May and June, which means that US and N Hemisphere weather will become more important with time. WASDE cannot and will not include any of this trade sabre rattling in their April report. WASDE cannot incorporate US/China trade rhetoric until there is statistical proof that it is actually impacting US exports. Our bet (and we are prepared to back this one quite strongly) is that the overnight Chicago lows are seasonal lows, and that prices whipsaw in a wide range as the market shifts back and forth from politics to weather.