- US/China trade tensions are pressing Chicago soybean, corn and wheat futures this morning. Spot Chicago soybeans appear to be dropping to test nearby support at $9.90-10.00 with spot soymeal likely to fall to $380/ton and return to the prior breakout point. We note that soymeal futures have gapped lower for the day/week with fund liquidation occurring. A record long fund soymeal position is vulnerable heading into the USDA May WASDE report. The lack of Chinese demand for US soybeans is reverberating throughout the Chicago marketplace. Although no trade war has developed, last week’s Beijing meeting failure raised the stakes that the US could place tariffs on $50 billion of Chinese goods in late May or June. Therefore, Chicago soybeans are in decline with an estimated 4-4.5 million mt of old crop US soybean sales at risk. Chicago corn/wheat have followed the soy complex losses with US wheat noncompetitive in the world marketplace. US HRW fob wheat is priced at $40- 44/mt above comparable offers in the Black Sea or more than $1.10/bu in a new crop position. At some point, even with sharp HRW wheat losses, the US will have to again become competitive in world wheat trade.
- If the US does slap tariffs on China, Chicago will likely lose a good portion of its hedge/pricing ability for China and S American farmers. For instance, if China wants to secure new crop soybeans from Brazil for January/ February, and the US/China are embroiled in a trade war with 25% import tariffs on US soybeans, does Chicago have much influence on the pricing decision. The premium for both the Chinese buyer and Brazilian seller would be up for negotiation and that premium would be difficult/impossible to hedge via Chicago futures/options contracts. Managing premium risk for the Chinese buyer and the Brazilian seller becomes difficult. Note the sharp recent break as Chinese buyers pulled back from the US and Brazilian marketplace via large domestic soy stocks. Maybe Chicago needs to offer a futures contract of trading fob Brazilian basis. Key to Chicago price action will be the US corn/spring wheat seeding pace.
- We are raising our US corn seeding estimate to 37-40% with spring wheat at 39- 43%. Any seeding total above 45% would be bearish for Chicago prices on Tuesday. The midday GFS weather forecast update is slightly drier than the overnight run for the remainder of the week. A weak front will push across the NW Midwest on Tuesday/Wednesday producing .2-1.00” of rain with a few locally heavier totals across E South Dakota. MN/WI are drier with .1-.85”. Dry and warm weather then follows into the weekend with the next system pushed back to late Friday/Saturday with rains of .4-1.50” across the Dakotas and N Midwest. The best rains are offered for the Lake States. A southern branch storm system produces rain across the Plains, Delta and S Midwest in the week following. Near to above normal temperatures produce generally favourable growing conditions. The midday GFS forecast offers better rain chances for the Plains beyond the coming weekend.
- US/China trade tensions along with heavily long funds is causing liquidation ahead of the May WASDE report. The question is does Chicago need to send a dire price message to Washington. There is so much US trade uncertainty.