- Chicago values are mostly lower as traders fret that the US/China are on a path to “no deal”. Reuters reported that China had redlined a good share of a 150-page document that outlined a 5-month effort to achieve a US/China trade pact. The official Chinese redline message was sent to the US Government late Friday. The Chinese back-down on pre-agreed written negotiations did not sit well with the USTR or President Trump which produced that now famous Sunday tweet. The Reuter’s story dropped financial/commodity markets in early morning trade.
- However, President Trump tweeted that VP Premier Liu He was coming to the US to cut a deal. And he claimed that the pullback from China was due to their “HOPE” that a Democrat would be elected in 2020. White House Press Secretary Sanders suggested likewise. Markets started to recover. The point is that the stakes for a US/China trade deal are extremely high with both sides interested in diffusing elevated trade tensions.
- China’s Trade Ministry is threatening that it will raise US tariffs in an immediate retaliation (if the US increases Chinese tariffs to 25% on $200 billion of Chinese goods). It is our doubt that USTR will allow China to “slow walk” negotiations going forward. In our view it is “deal or no deal” and a deepening trade war if China does not want to ink the 150-page deal agreed to in Beijing last week. China needs to come back and sign what was already agreed to.
- A point not to forget; the US won a WTO TRQ case against China that will force them to secure 7.2 million mt of corn and 9.6 million mt of wheat. A no trade deal with the US will likely push China to secure this grain elsewhere. If China does not adhere to its WTO pledge, remuneration will be required for the current and past years dating back to 2002. China entered the WTO in Dec 2001.
- There is strong talk that Argentine corn is being booked into the SE US due to its cheap cost. Argentine corn works into the SE US livestock feeders on paper. The cheap cost of Argentine and Brazilian corn makes US corn expensive and US corn exports look high. We do not hear of large volume imports, but a few boats were booked for late summer and early autumn.
- Chicago brokers estimate that funds have sold 1,000 contracts of wheat, 5,000 contracts of corn, and 900 contracts of soybeans. In soy products, funds have sold 1,200 contracts of soyoil and bought 1,500 contracts of soymeal. Trading activity at noon is ramping down amid the uncertainty. The FAS weekly export sales report is expected to be slightly bearish on Thursday with slowing sales.
- The midday central US weather forecast is little changed from the overnight run with moderate rain to fall across the C and E Midwest over the next few days. Rain totals look to range from 0.4-1.50” with a few locally heavier amounts. The heavy rain falls across the Gulf States with totals of 1-4.50’ with some local amounts reaching 6-8.00”. Along with the flood waters on the Mississippi River, 2-4.00″ of rain will exacerbate the flooding. The good news is that following the rains over the next 48 hours a 6-7-day period of dry/cool weather unfolds that will help dry things out. The next storm system is not evident until May 20 with a potent system moving eastward across the Midwest which looks to produce 0.5-2.50″ of rainfall.
- For the next several days it is all about headlines, on US/China trade, on US and world grain and soy stocks, and Central US weather. US farmers report that it will be the middle of next week before widespread planting resumes with the forecast calling for the window to close on May 20. Long range forecasts can change, but the loss of US corn/soybean acres and yield would become more real after May 20. Headlines will be driving Chicago values into Monday.