Corn & soybeans followed the path of least resistance & continued to erode on Tuesday as harvest added supply pressure & tariff increases were announced by the US & China on each other’s goods. On Monday afternoon, President Trump indicated 10% tariffs will be imposed on another $200 billion of Chinese imported goods starting next Monday. Those tariffs are set to rise to 25% by January if China & the US fail to reach a trade deal. Trump also warned that he would impose tariffs on an additional $267 billion of Chinese imports if China retaliated for next week’s tariffs. Undeterred by that threat, China said it would target $60 billion of US imports to impose 5% to 10% duties starting next week. Traders interpreted the latest round of tit-for-tat trade actions as a sign that the Sino-US trade war will not be resolved soon & that US agriculture will continue to bear the most intense economic pain during the dispute. Wheat bucked the downtrend after Russia estimated that wheat exports would reach about 30 mmt in 2018/19. That would be 5 mmt below USDA’s current forecast & 11.4 mmt (-27.3%) below last year’s Russian wheat sales. Wheat traders continue to hope that US wheat exports will expand as Russia & Australia are forced by crop losses to curb shipments. Corn & soybeans each sagged to fresh contract lows & bottom-range losses & wheat trimmed overnight gains in half. At Tuesday’s close, Dec. corn futures declined 4.75c lower, beans tumbled down 9.5c & wheat rallied 4.25c
Grains attempted to stabilize Tuesday night as rain delays across parts of the central Corn Belt halted early season harvest progress. At the 7:45 am pause in electronic trading, Dec. corn futures were up 3/4c, Nov. beans were 1.5c higher, Oct. soymeal was $3.20/ton higher, & Dec. SRW wheat was up 6.25c.
Wide basis levels & low futures prices typically provide farmers an incentive to avoid cash sales, & this year is no different. He who owns the storage facility wins. Trade reaction to the intensifying trade war between the US & China has been fairly muted in recent days since they won’t cause further decreases in short-term demand for US farm products. Fact is, US sales to China essentially dried up starting in mid-May as 6-week ocean shipping times from the US forced China to avoid purchases due to the expected imposition of tariffs on July 6. But the longer the trade spat remains unresolved, the more business is lost & the more likely that short-term demand destruction becomes permanent. The latest round of tit-for-tat trade counter-measures comes at the worst possible moment for US farmers who lack adequate storage or ability to avoid forced sales. Despite Trump’s assertions otherwise, trade wars typically produce far more losers than winners. In 50 years of following markets, never have I seen such an assault on farm income caused by Washington DC-directed aggression against virtually all of our most important customers.
In export news, USDA did not announce any daily export sales on either Tuesday or Wednesday. South Korean feed processors bought about 2.6 mb of optional-origin corn & 60,000 mt of soymeal on Tuesday, & 4.842 mb of corn likely to be sourced from the US on Wednesday. Egypt’s state-run grain buyer, GASC, purchased 10.839 mb of Russian wheat for Nov. 1-20 shipment on Tuesday following a snap tender issued on Monday afternoon. Syria also bought 7.349 mb of Russian wheat this week. Turkey—the world’s largest wheat flour exporter--is seeking 9.259 mb of optional-origin wheat next week for mid-October shipment. Morocco will seek 12.359 mb of durum wheat for December delivery late next week. China auctioned 3.417 mb of state-owned soybeans from its grain reserves on Wednesday for $12.14/bu., selling all that was offered to domestic end-users.
In production news, Statistics Canada forecast on Wednesday morning that farmers will harvest 29.984 mmt of wheat, 20.999 mmt of canola, 14.461 mmt of corn, 8.227 mmt of barley, 7.515 mmt of soybeans, 3.735 mmt of dry peas, 3.383 mmt of oats & 2.23 mmt of lentils this season. While each of those projections is larger than forecast at the end of July, year-on-year output of wheat would decline 1.035 mmt, canola would drop 0.329 mmt, corn would rise 0.366 mmt, barley would increase 0.336 mmt, soybeans would decrease 0.202 mmt, dry peas would drop 0.377 mmt, oats would decline 0.350 mmt & lentils would fall 0.328 mmt if the projections are realized. In Brazil, farmers are taking advantage of ample moisture to plant their 2018/19 corn & soybean crops. Government rules in top-producing state Mato Grosso allow soybean planting to begin on Sept. 15, & farmers in #2 producer Parana have seeded 9% of their first-crop beans. Citing 4.5-year highs in barley prices & 3.5-year highs in wheat prices, Ukraine analyst UkrAgroConsult expects Ukraine farmers to boost winter wheat & winter barley acreage this fall, but decrease corn planting next spring because prices of that commodity have not risen.
Informa Economics forecast on Tuesday that US farmers will increase corn planting in 2019 by 4.4% to 93.044 mil.ac. & decrease soybean acreage by 7.5% to 82.270 mil.ac. in response to decade-low soybean prices. Using 2019 yields of 178.0 bu/ac. & 51.0 bu/ac., respectively, the firm projected next year’s corn output at 15,256 mb & beans at 4,161 mb. Such production would threaten to push 2019/20 corn carryover stocks back above 2,000 mb, & keep 2018/20 soybean stockpiles near 700 mb unless new export markets open up.
Locally, corn basis declined 4c, soybean basis lost 2.5c, & wheat basis was steady on Tuesday. With both cash & futures under pressure, St. Louis grain terminals posted their lowest closing spot bids for corn since July 4, 2017 & for soybeans since July 23, 2007 on Tuesday.
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"Closing Comments" are written by David Marshall, First Choice Commodities LLC, Nashville, IL. To learn more about his farm marketing advisory or commodity brokerage services, contact him at firstname.lastname@example.org or call (618) 327-4370 (voice/fax) or (618) 314-0918 (cell). This commentary is not intended for specific trading strategies. We strive to insure this information is reliable, but we cannot guarantee its accuracy or completeness. Commodity trading involves risks. You should fully understand those risks before trading.