- The morning has been mixed in Chicago with the summer row crops firmer while wheat futures sag on the prospect for rain across the Central Plains. The rally in corn/soybeans has been based fresh fund buying which is related to a week of strong US export sales amid the switching of non-Chinese buyer demand of Brazilian soybeans back to the US. Also, the prospect that President Trump won’t immediately target Syria with a missile strike has offered levity to the US and world financial markets. Funds have been putting risk back on in soybeans and corn, and adding a short back into wheat. We look for a mixed close with trade volume slowing into the close. Traders will be loath to take on additional risk heading into the weekend amid the ongoing political uncertainty of Syria/trade tariffs. Chicago floor brokers report that funds have bought 4,500 contracts of corn, 5,000 contracts of soybeans, while selling 5,500 contracts of wheat. In soybean products, funds have bought 2,200 contracts of soymeal and 1,200 contracts of soyoil.
- FAS reported that for the week ending April 5, the US sold 4.4 million bu of old crop wheat (and 2.5 million bu of new crop), 33.1 million bu of corn, and 55.5 million bu of soybeans. Weekly US soybean sales were above trade expectations and included 35.1 million of new crop sales. The purchases by China in a new crop position is comforting traders that China is not seeing a real trade tariff issue. We fear that such thinking is not capturing the lack of negotiation between the parties and the potential for US tariffs to come in late May/June. WASDE is forecasting a 5% decline in US 2017/18 soybean export estimates, so there is no statistical rational for WASDE to raise or lower their export estimate today. The same applies to soymeal.
- US President Trump continues to reassure US farmers that they will be taken care of if China retaliates against $50 billion of US tariffs that were promised in late March (working their way through the US 30 day Government comment period). The USDA is working hard to find an equitable platform to compensate US producers for trade related losses, should a US/China trade war erupt. The US has a Sec 301 finding against China and Tuesday’s warm talk by President Xi is not enough to halt US intellectual property protection demands. We are fearful that additional US/China trade (in the media) bantering will occur and that the odds grow with each week of non-negotiation that US tariffs will occur.
- It should be a risk off day on Friday as the market fears new trade rhetoric against China and a potential military strike against Syria. We estimate that funds are long around 198,000 contracts of soybeans, 130,000 contracts of corn, and 110,000 contracts of soymeal. The long side of soybeans/soymeal is loaded which makes the market vulnerable to adverse news. US soybean demand has slowed as Brazilian fob premiums have retreated to more normal levels.