Grain markets are mixed this morning as trade war talks and weather are flooding headlines for the complex.
“There is no end to education. It is not that you read a book, pass an examination, and finish with education. The whole of life, from the moment you are born to the moment you die, is a process of learning.” – Jiddu Krishnamurti (Indian philosopher)
Is the Trade War Between China & America Over?
Grain markets are mostly in the red this morning as trade war talks and weather are flooding headlines for the complex. Last week, fund managers reduced their short positions in corn, canola, and soybeans, with beans seeing a pivot to a net-long position. Yesterday though, technical selling, physical selling off the combine, and questions around a trade war deal between the U.S. and China pushed grain markets lower. Ultimately, while last Thursday’s October WASDE report was generally supportive of grain markets, the move might’ve been a bit overdone, hence the pullback so far in this current week of trading.
Yesterday, we got NOPA’s September crush number, showing 152.566M bushels of soybeans were processed last month (or 4.15 MMT if converting bushels into metric tonnes). This was disappointing relative to the pre-report average expectations of 162.2M bushels, last September’s crush of 160.8M bushels, and last month’s 168.1M bushels. Further, soy oil stocks jumped by 40M pounds from last month to 1.442 billion, which was also 120M pounds more than what the market was expecting to see. Obviously, this isn’t helping the soybean complex, or oilseeds in general.
What also dropped in September was the size of China’s pig herd. The country’s agriculture ministry said that the number of hogs dropped by more than 41% compared to a year ago as a result of the spread of the herd-culling ASF virus.  A month ago, I asked the question if the African Swine Virus will ever be solved and while I can tell you that there are many companies working on it (there are some big bucks up for grabs if you can produce a vaccine), nothing substantial has been fashioned yet.
Is the Trade War Over?
Earlier this week, the U.S. and China agreed in a principle to a “Phase One” deal that would halt the tit-for-tat tariff trade war from continuing (there were new U.S. tariffs on Chinese goods were set to go into effect next week).  It is rumoured that China agreed to $40 – $50 billion in U.S. agricultural products over the next 2 years, including pork, white and spring wheat, sorghum, ethanol, and at least 30 MMT of soybeans. While these values are being questioned in many circles as to whether they can be realized, U.S. farmers and producer organizations are now cautiously optimistic that the light is at the end of the trade war tunnel for them. 
For China, the big win here is that they don’t have more tariffs put on their goods. Since the start of the trade war last year, China has had tariffs imposed on more than $360 Billion of their goods, while China has put about $100 Billion worth of tariffs on U.S. goods (notably soybeans!). The promise of purchasing more farm goods would help put a dent in the quite large trade deficit that the U.S. has with China.
In this “Phase One” trade war deal, the White House is suggesting that China is willing to open its financial markets to American financial services and banks. However, it’s worth noting that American businesses aren’t getting preferential treatment here as China has announced they’re doing this for all countries with major financial players. The big sticking point for many American firms has been intellectual property and in this latest round of trade war negotiations, supposedly there is wording for stronger protection of copyrights and patents.
Let me be clear though: the end to the trade war is not here so don’t pop that champagne bottle just yet. Put simply, this is not a done deal and it’ll take a few weeks just to get everything onto paper, reviewed, and then, ultimately signed.  In the meantime, the International Monetary Fund says that the trade war between the U.S. and China has had a major ripple effect around the rest of the world, and that global growth is expected to be its slowest since the financial crisis a decade ago. 
Crop Progress Says What We Already Know
The winter weather that hit the Northern Plains and part of Manitoba over the Canadian Thanksgiving weekend will certainly leave an impact on the remaining crop yet to be harvested. Similarly, Saskatchewan and Alberta received some of the white stuff last week, and as the Alberta government put it in its crop progress report last Friday, “the quality of standing crops is likely to deteriorate due to the prolonged wet and cool conditions”. 
In the U.S., the USDA’s weekly crop progress report showed that 22% of the U.S. corn harvest is complete, below the 24% expected and the 27% average of the last 5 years. Comparably, 26% of the U.S. soybean harvest was said to be complete, slightly above the market’s expectation of 25%, but behind the five-year average of 49%. Despite the winter weather, the USDA said in this week’s crop progress report that 55% of corn and 54% of soybeans are still considered to be in good-to-excellent condition.
Where these harvest numbers likely matter most though is in the Northern Plains as a white blanket will certainly stall much of any crop progress for the next week or so (at minimum). For example, just 1% of the corn harvest and 16% of the soybean harvest in North Dakota is complete. Compare this to their five-year averages of 12% and 67% respectively. Or in South Dakota where the five-year averages for the corn and soybean harvest is 19% and 57%, but this year, the corn harvest in the Rushmore State is just 5% complete, while only 13% of bean fields have been combined.
Ultimately, the late harvest, combined with some optimism for the trade war to end (or at least slow), is helping grain markets, but the complex needs more hard facts and less rumours to maintain elevated levels. Without those datapoints and/or hard details on the trade war comprises, grain markets will continue to see-saw and be volatile.
At 7:20 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.32 CAD, $1 CAD = $0.7576 USD)
Dec Corn: -2.8¢ (-0.7%) to $3.905 USD or $5.155 CAD
Jan Soybeans: unchanged at $9.485 USD or $12.521 CAD
Dec Soybean Meal (per short ton): +$0.20 (+0.05%) to $308 USD or $406.57 CAD
Dec Soybean Oil (cents per lbs): -0.02¢ (-0.05%) to 30.37¢ USD or 40.09¢ CAD
Dec Oats: +2.5¢ (+0.85%) to $2.99 USD or $3.947 CAD
Dec Wheat (Chicago): +0.3¢ (+0.05%) to $5.073 USD or $6.696 CAD
Dec Wheat (Kansas City): -0.8¢ (-0.2%) to $4.205 USD or $5.551 CAD
Dec Wheat (Minneapolis): -0.8¢ (-0.15%) to $5.448 USD or $7.191 CAD
Jan Canola: +0.9¢ (+0.1%) to $10.673/bu / $470.60/MT CAD or $8.085/bu / $356.50/MT USD
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