Dec 3 – Grain Markets Pop on U.S.-China Trade War Truce

Good Morning!

Hard red spring wheat and canola prices are the only things in the green this morning for grain markets as we flip the calendar to December 2018.

“When envoys are sent with compliments in their mouths, it is a sign that the enemy wishes for a truce.” – Sun Tzu (Chinese Philosopher)

Grain Markets Pop on U.S.-China Trade Truce

Hard red spring wheat and canola prices are the only things in the green this morning for grain markets as we flip the calendar to December 2018.

Conversely, broad equity markets are all rallying, thanks to the much-anticipated short-term truce between the U.S. and China after a round of meetings over the weekend at the G20 Summit in Argentina.

Both countries agreed to a 90-day “tariff truce” with U.S. President Trump vowing not to increase tariffs on another $200 Billion worth of Chinese goods to 25% (from the current 10%) on January 1. Conversely, Chinese President Xi has supposedly agreed to buy a “very substantial” (albeit unspecified) amount of industrial, energy, ag, and other products. [1]

This basically all means that the next 90 days will be still volatile with rumors yet again swirling around trade deals being done or not. This is especially true for soybean prices, as mentioned in last Friday’s FarmLead Breakfast Brief.

Quick sidenote: U.S. stock exchanges will be closed this Wednesday to honor former President George H.W. Bush, who passed away this past Friday. It’s unknown if bond and commodity markets will follow suit, but the last time U.S. financial markets did this was back in 2007 after President Gerald Ford past away.

Did Grain Markets Actually Get What It Wanted?

Technically, grain markets all opened sharply higher when weekly trading resumed in the Sunday night session, but have since pulled back. Soybean prices gained as much as 3.2% to highs not seen since June before pulling back on the reality that there’s still a 25% import tariff on U.S. soybeans. [2]

While Beijing said they were going to buy more American goods, including ag products, the question is if China will return to buying from the U.S.

Bloomberg correctly points to Jimmy Carter’s Soviet grain ban in 1980 and Richard Nixon’s soybean embargo in 1973 as examples where, once the bridge was burned, it wasn’t immediately rebuilt. [3]

In 1973, the soybean embargo pushed Japan – who at the time was importing more than 88% of its soybeans from the U.S. – to eyeball Brazil, investing heavily there. We all know what sort of soybean player Brazil is today. If you don’t know, they’re the #2 producer and #1 exporter of soybeans in the world. Further, a recent survey of 13 analysts suggested that Brazil will produce 121 MMT of soybeans for the 2018/19 harvest, up 1.2% year-over-year.

Further, in 1980, the ban on dealing with the former U.S.S.R. disrupted trade flows significantly and was ultimately deemed ineffective by the World Bank as global grain buyers reduced their reliance on U.S. options.

Ultimately, it may take years to build up the trade relationship that saw China buy every third row of American soybeans. The biggest exporting window of soybeans to China has already passed (Sept/Oct/Nov) and the Brazilian harvest is likely to start at the end of this month.

India Looking for Pulses on Dry Rabi Crop?

In the most recent crop report from India, they suggest that dry weather across the country is likely across the country for the next few weeks. [4] Cumulative from October 1st through last Friday, India as a whole, has only received about half of its normal precipitation for the same nine-week period. Historically-speaking, as the rabi crop growing season moves along in the calendar, there’s usually less rainfall. This would suggest that the moisture that’s in the soil today is all that Indian farmers are going to see.

From a planting pace standpoint, 3.13 million acres of lentils have been planted thus far through Friday, November 30th. This is more than 7% or 500,000 acres behind the 3.63 million acres of lentils planted at this time a year ago.

For peas, 1.64 million acres have been planted, 7% behind the 1.754 million acres of peas planted at this time a year ago. On that note, yellow pea prices continue to make higher highs, as the market is pricing in the risk of a smaller rabi crop.

 

Nov 28, 2018 India Yellow Pea Prices

Since we know that North American pea exports often find their way into India as a substitute for India’s chickpeas, it’s worth mentioning the seeding pace of chana/gram in India too. Through this past Friday, 17.4 million acres of chickpeas have been planted thus far through Friday, November 30th. This is almost 18% behind the 20.5 million acres of chickpeas planted at this time a year ago.

Overall, total pulses planted so far in India for the rabi crop have totaled 25.2 million acres, more than 12% and 3.5 million acres behind the 28.75 million acres planted at this time a year ago. Also worth reminding is that India produced 9.22 MMT of pulses in their summer/kharif crop., their third-largest harvest ever for this specific season.

This only further adds flame to the fire that India will need to import more pulses in 2019, including lentils and peas, as their rabi crop suffers. However, we’re also mindful of this large kharif harvest and leftover supplies from 2017, their second-largest harvest of pulses ever.

Overall, just like with the U.S.-Chinese soybean trade, India’s import of more pulses could materialize, but it’s unlikely that import tariffs will decrease. We’ve been seeing some strong pea trading activity o the FarmLead Marketplace – if your peas aren’t posted on the Marketplace, how can the 140 credit-verified buyers on peas on FarmLead know they’re for sale?

To growth,

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

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 = $1.3232 
CAD, $1 CAD = $0.7514 USD)

Mar Corn: -3.3¢ (-0.86%) to $3.810 USD or $5.041 CAD
Jan Soybeans: -9.5¢ (-1.03%) to $9.103 USD or $12.045 CAD
Jan Soybean Meal (per short ton): -$2.40 (-0.75%) to $315.50 USD or $417.47 CAD

Jan Soybean Oil (cents per lbs): -0.40¢ (-0.14%) at 28.39¢ USD or 37.566¢ CAD  
Mar Oats: -3.3¢ (-1.11%) to $2.940 USD or $3.890 CAD
Mar Wheat (Chicago): -6.0¢ (1.18%) to $5.020 USD or $6.642 CAD
Mar Wheat (Kansas City): 2.5¢ (0.50%) to $5.038 USD or $6.666 CAD

Mar Wheat (Minneapolis): -4.3¢ (-0.75%) to $5.685 USD or $7.522 CAD
Jan Canola: $1.10 (0.23%) to $10.898/bu / $480.50/MT CAD or $8.188/bu / $361.05/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

 

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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