- Mixed on reduced volume has been the morning with Chicago volume subsiding at noon. US stock values are sharply lower as the Trump Administration will raise tariffs against China on $200 billion of goods on Friday morning at 12:01am. The tariff increase will go from 10% to 25% as President Trump raises the stakes in upcoming China trade negotiations that starts Thursday.
- Amid the diminished trade uncertainty with China, traders are surprised that Chicago prices are rising. We would reiterate that funds are heavily short already and amid the cool/wet weather, US farmers are not sellers. This means that funds would have to add to their net short, and they are not doing so – at this time.
- Traders understand that with USTR to raise tariffs on Friday on $200 billion to 25%, and likely to include the entire Chinese/US trade (estimated at another $300 billion with like tariffs after 30 days in the Federal Register) if meaningful progress is not scored by in this week’s DC discussions, the time of dancing to a deal is passing. Blunt objects called tariffs and retaliatory tariffs are likely to produce a deal sooner than later. President Trump cannot afford to allow a trade war to fester into the 2020 US election.
- We look for a mixed Chicago close with the trade war rhetoric being ramped up.
- Friday is a big day for the Chicago with the USDA May Crop Report and US/China trade talks. Some traders suggest that the trade talks could continue into the weekend as they did in February. We would call this thinking as pure speculation on whether China brings something to the table that will extend the talks. The point is that funds are holding a record large short position and have a desire to take some risk off the table. That is the reason for Chicago recovery in our view as US farmers are not sellers of old/new crop cash grain at current prices.
- Stats Canada estimated March 31 stocks of grain/oilseeds at: 1.4 million mt of oats (down 33.4% from a year ago), 10.0 million mt of canola (up 10.5% from last year’s 9.1 million mt), and 15.7 million mt of wheat (down 4.3% last year or 16.4 million mt). The wheat and canola stocks were right on trade estimates, while oats were lower. The report was seen supportive to oats and broadly neutral otherwise.
- Argentine fob corn is offered at $0.08 cents over for July vs Brazil at 30 cents over, the US at 57 cents over and Ukraine at 65 cents over. There is an extra cost for loading of Argentine corn up river of 15 cents/bu, but overall, S America remains aggressive on offering corn.
- Argentine fob soybeans are offered at 15 cents under July compared against the US at 46 cents over and Brazil at 65 cents over. The big change is Brazilian soybean basis levels that have soared as the US/China struggle to reach a trade deal. The Brazilian premium to US soybeans forecasts that the odds of a US/China trade deal have declined dramatically from a few days ago.
- The midday Central US Midwest weather forecast is little changed from the overnight run with moderate to heavy rains across the W Midwest and through the E Plains and the Delta. Rain through the E Midwest looks to be more normal with totals of 0.5 – 2.00”. Our expectation is that the rains will be father east into IL and MO that what is being indicated by the GFS forecast. Cool to cold temperatures will hold across Canada, the N Plains and Upper Midwest for the next 10 days. The flow of cold air southward from W Canada. However, the jet stream shifts northward in the 10-15-day period which produces dramatic warming and excessively wet weather. We suspect the wet forecast is correct, but that temperatures will be notched down in coming runs.
- Short covering is lifting Chicago values as large fund managers reduce their risk as US equity values tank and a key USDA report is ahead, the May WASDE. It is a high stakes game of poker in US/China trade negotiations. The US will be increasing tariffs on Friday morning to 25% on $200 billion of Chinese goods. What will China do. We have reduced our expectations of a trade deal from 90% to 70%, but notice that we still lean in favour of a deal. It is now a question of timing.