- Following a sharply lower opening, Chicago prices have modestly recovered on a combination of fund short covering and end user pricing. The uncertainty of how China will react to US President Trump’s threatening Sunday tweets on trade is being debated within the industry. US stock market values have cut their losses in half, commodities have followed.
- The US/China trade deal chances were diminished by President Trump’s Sunday tweet. Will China go forward with trade negotiations and reach a deal with the US or will the Trump Administration move to raise and expand punitive tariffs on China. That is the big question for going forward.
- The Trump Administration has already gone through the process of itemising the Chinese goods that are or will be tariffed, and all the President needs to do is inform the US Congress and population through the Federal Register that new and elevated tariffs will be applied. This can be done in 24-48 hours. Traders will be watching to see if the Trump Administration follows through.
- We fear that amid the good US economy, that the Trump Administration decided on the weekend to seek more from the Chinese than they may be willing to give. The news is disheartening for US farmers amid poor profit margins.
- Chicago brokers report that funds have been general buyers since the 8:30 reopen. Heavily short fund managers saw the drop as an opportunity to bank a modest portion of their profits. Funds have bought a net 2,300 contracts of wheat, 3,100 contracts of corn, and 3,800 contracts of soybeans. Funds were likely sellers in the active overnight trade, but have been covering shorts amid the lack of farmer cash selling this morning.
- US export inspections for the week ending May 2nd are 38. 5 million bu of corn, 22.0 million bu of soybeans, and 17.6 million bu of wheat. All were in line with trade expectations. For their respective crop years to date, the US has shipped out 1,402 million bu of corn (up 95 million or 7%), 1,181 million bu of soybeans (down 437 million or 27%), and 804 million bu of wheat (down 13 million or 0.4%). We look for a drop in US corn and soybean export estimates from WASDE on Friday.
- How many will be in the Chinese Trade Delegation coming to Washington DC, and will Liu He attend. Those are the big questions that are being asked by traders this morning. In tweets, Trump mentioned the many years of the US losing $600-800 billion in world trade deficits and that China was a big contributor at $500 billion. The Trump tweets are raising trade tensions between the world’s two largest economies and worry that a trade deal is being lost. Unknown is whether there is a way forward following the months of negotiations that were reported as showing progress. US farmers are extremely frustrated.
- The midday Central US GFS weather model is farther east with rain and include more of IL than the overnight EU model. The forecast models continue to struggle with the exact placement of rainfall in the next ten days and a zonally flowing and strong jet stream. Heavy rains are slated to drop across the E Plains and through the Delta, but the GFS offers a break from the heavy rains for the E Midwest. Cool to cold temperatures will hold across Canada, the N Plains and Upper Midwest for the next ten days. The flow of cold air southward from W Canada shows no sign of abating. The cold and wet weather will continue to cause regional Central US planting struggles.
- Today is a prelude of longer-term US ag bear market if the US/China are unable to reach a trade deal later this week (or next week if talks are extended). If China locks out US ag goods from its market through retaliatory tariffs, the future gets ugly. But there is still hope that a deal can be reached, it’s not over until it’s over. We remain hopeful.