- China trade war fear has sparked widespread selling/liquidation at the CME with US farmers trying not to panic while end users are passive about taking too much coverage ahead of an expected Trump announcement on Friday. The fear of a trade war is actually more troubling for the market than knowing that the US/China are in one. Currently, anxiety from ag producers is extremely high.
- Soybeans, soy products and corn have pushed to new lows with July Chicago wheat falling below its recent support. The charts have turned bearish with funds active in their selling. We estimate that funds are now net flat in soybeans, but are still holding a sizeable long in soymeal, corn and wheat. The China trade war won’t have much of an impact on the US grain exports (since China is not a large US importer of corn/wheat), but traders fear that China will rescind their offer to end duties on US sorghum, and place a 25% tax on US soybeans and other ag products. The market is clearly signalling their expectation that President Trump will announce $50 billion of trade tariffs on Friday. China this morning reminded the US that it will retaliate and that their offer of securing an extra $70 billion of US ag/energy products will be off the table. The imposition of actual tariffs will cause a hardening of positions, with some in China advocating for a boycott of US products. US farmers hope is that President Trump keeps his promise and quickly offers a program of compensation or market stabilisation following any retaliatory measure by China against US ag products. Rising US interest rate costs along with the 50% drop in net farm income will push some US producers into acute financial stress without almost immediate White House assistance.
- We hear that the US and China are still in negotiations on how to avoid the US tariffs although it is President Trump that has the final say. State Dept head Pompeo is in China. The Chinese are pushing for a win-win in offering to boost their purchases of US goods -including agricultural and energy. Pompeo also met with Chinese President Xi for dinner. And in the background US trade are the issues of ZTE and China’s needed help with North Korea. The Trump Trade Team is arguing for tariffs, but President Trump could allow for negotiations to run for another 180 days if he sees progress.
- The US$ is sharply higher following news that European Central Bank commented that interest rates will be on hold at low levels thru the summer of 2019. The US economic outlook is bright and further rate hikes lie ahead. The EU, Japan and much of the emerging markets cannot afford to raise rates.
- The midday central US midday GFS forecast is wetter across Minnesota/Wisconsin as a storm system rides over the top of a ridge of high pressure this weekend. The ridge of high pressure progresses slowly east over the next four days to a mean position across the Midwest. This ridge causes warm to hot Central US temperatures with highs ranging from the upper 80’s to the upper 90’s into mid next week. A cold front compresses the ridge and produces a few showers late next week.
- Soybeans are down $1/bu while corn prices are below last year, when US and world stocks were forecast to be much larger. The Black Sea weather forecast is warm/dry which is harming their corn crop. Chicago has fallen sharply based on the expected US announcement of tariffs against China. Political markets are impossible to trade unless you use options. Our hope is for political clarity.