Trade negotiations still forefront
Trade negotiations continue to swirl around the grain trade. China has shown no interest in sitting down to the negotiating table with the U.S. Both sides are indicating they are willing to begin talks but no action has been seen from either party. Canada’s foreign minister left Washington D.C. on Friday without an agreement. In a statement issued by the Canadian official, they remain optimistic on progress towards reaching a mutual agreement. The dairy and auto sectors remain the main issues that negotiators are still trying work out.
The Trump administration applied a new 10 percent tariff on $200 billion of Chinese goods this week. The actual number of products is estimated to be in the thousands. China took immediate action and applied 5-10 percent tax on $60 billion of U.S. goods. The tit-for-tat dispute appears to be escalating with no clear direction or timeline in sight. The Trump administration has been quoted that their goal is to have open trade with China that includes no tariffs and no subsidies for both parties. The WSJ has reported that talks have broken down between negotiators on both side. Officials close to the matter have said talks will likely continue after mid-term elections.
With no positive developments being made toward a trade agreement with the U.S., Chinese soybean buyers are looking to purchase more soybeans from Argentina. Even after adding in the tariffs and freight, U.S. soybeans are cheaper than those of other suppliers. Users are still unlikely to book from the U.S. due to the fact that the tariff is paid at the time the soybeans are delivered, not when the sale is made. Fear that China increases the tariff amount prior to delivery is keeping them going to non-U.S. sources.
There are talks in the market that China is looking to other alternatives to Brazil for soybean needs. With the large volume imported from Brazil, they’re worried about depleting the supplies there. Argentina and Canada are destined to be the next main suppliers in line for China. Rumors of up to 33 million bu. of U.S. soybeans to Argentina are being heard. The Brazilian Firm Agribrasil recently stated they believe that Brazil will be importing soybeans from the U.S. in coming months as well.
U.S. harvest progress last week came in just slightly under expectations at 16 percent complete for corn and on the high side for soybeans at 14 percentt complete. This is up from 9 percent and 6 percent respectively from last week. Illinois and Missouri are experiencing an accelerated harvest pace. Currently Illinois is ahead by 15 percent of their current 5 year average of 13 percent. Missouri, which was plagued by a drought conditions throughout their growing season, is currently 15 percent ahead of their 5 year average of 28 percent.
Yield reports coming out of Illinois are coming in better than expected. Most of the Midwest, outside of Illinois and Missouri, have experienced enough precipitation to keep harvest at a standstill.
The signing of a renegotiated free-trade agreement between U.S. and South Korea is providing optimism that export markets for American farm goods won’t shut down and could possibly even expand. The agreement was signed Monday on the sidelines of the United Nations General Assembly. This is the first major trade deal that the President has forged amid the rising trade tensions. South Korea is the 6th largest export market for U.S. agriculture, buying $6.9 billion worth of farm goods last year.
The U.S. plans to move forward on its bilateral trade deal with Mexico even if an agreement hasn’t been reached with Canada. The Trump administration plans to present Congress with the context of the U.S.-Mexico trade agreement to revise portions of the North American Free Trade Agreement. The Mexican president is pushing to get the deal signed before his replacement takes office in December.
Brazil’s planting pace
Central and the Northwest areas of Brazil are getting relief from the recent dry spell. Rain in those areas have improved soil conditions as planting takes place. Brazil is off to the quickest planting pace it’s seen in five years and thought to be two weeks ahead of normal. Often times, early planting is associated with increased yields. The group Informa recently upped their production estimate to 122 MMT, an increase of 1 MMT from their August estimate. The USDA’s August estimate for Brazil is at 120.5 MMT.
Quarterly stocks report
The USDA released their quarterly stocks report on Friday, stocks as of Sept 1st came in above expectations for corn, soybeans and wheat. Corn stocks came in at 2.140 billion bu. 130 million bu. higher than the average trade guess but down 7 percent from last year. Wheat stocks came in at 2.379 billion bu., 136 million bu. higher than expected and 5 percent higher than last year. The soybean stocks figure was 438 million bu., 30 million bu. higher than expected and a large 45 percent above last years total for the same time.
Speculation whether corn futures have found their bottom continues. A recent FC Stone study looked at the past 10 years of seasonal data, the new crop December contract has only made its’ low one time during the month of September. The most common month for the low to be established during the timeframe was December, at four years.
Another study by FC Stone showed that in the last 17 years of corn price history used to establish insurance values, only 5 times has the fall price been higher than the base price established earlier in the year. The most recent was in 2012 when drought significantly reduced the corn crop, causing a large run up in values as the year progressed.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
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