- Chicago markets have rallied by varying degrees at midday, driven by positive US-China trade news, perhaps the most positive of the season. Dow Jones is reporting that the US trade team has elected to not implement new tariffs on Dec 15, and is also offering to reduce the total tariff burden on Chinese goods by up to 50%. Our understanding is that this is the US team’s proposal, and there is no word on China’s response. What the US gets in return is unknown, but surely some measure of new ag purchases will be included. Oddly, US wheat futures have led the morning rally despite a sizeable US corn sale to Mexico.
- As trade talk details emerge, key will be whether China’s stance toward raising US ag purchases based on market conditions, rather than committing to a certain per-year dollar figure, has been altered. However, Chicago markets will be well supported into the weekend as risk premium is added.
- US export sales through the week ending Dec 5 were also mostly positive. Corn sales through the period totalled 34 million bu, vs. 22 million the prior week and the largest since September. This is fractionally above the pace needed to meet the USDA’s target, and suggests demand is being shifted to the US as S America’s export campaign comes to an end. Exporters this morning sold 1.1 million mt of corn to Mexico for 2019/20 delivery.
- Wheat sales totalled 18 million bu, vs. 8 million the prior week. Soybean sales were 39 million bu, vs. 25 million the prior week. And US soy oil sales were a solid 66 million lbs vs. 24 million the prior week.
- For their respective marketing years to date, the US has sold 610 million bu of corn, still down 44% from a year ago in early December. Exporters have sold 990 million bu of soybeans, up 9% on last year; and 623 million bu of wheat, up 4%.
- We would remind that corn sales of 30-35 million bu need to be recorded in each remaining week of the 2019/20 year to validate the USDA’s 1,850 million bu forecast. This in turn requires major yield loss in S America. But a nearby stronger demand pull will keep longer term support at $3.65-3.70 intact. New cash sales will only be made on rallies amid ongoing political uncertainty and as operational models at midday fail to boost rain chances across some 50% of Argentina’s Corn Belt. However, it is still entirely up to Presidents Trump and Xi whether a comprehensive trade deal is made.
- The midday GFS weather forecast is wetter across the heaviest corn producing regions of Argentina Dec 19-22. Cumulative totals of 1.5-3.0″ are offered to southern Cordoba and northern Buenos Aires, a region comparable to IA/ IL in the US. Confidence in the details of the midday GFS is low, with other models still much more arid in Central Argentina. But the EU model’s release this afternoon will be watched closely.
- Otherwise, dryness stays intact across Northeastern Brazil amid an anchored ridge of high pressure there. The remainder of Brazil will see normal/above normal precipitation throughout the next 10 days. Extreme heat remains absent from both Argentine and Brazilian forecasts.
- Short covering is featured amid the possibility that a Phase One agreement is reached by the end of 2019. Work also suggests that spot corn at $3.70 is a bit undervalued fundamentally. Key to the extent of any recovery will be the details (ag purchase tonnages) of any US-China agreement.