Feb. 14 – Will Trump Give Some Love to Grain Markets?

Grain markets this morning are mostly mixed on this Valentine’s Day, one where we’re hoping to see U.S. President Trump and China give the grain markets some love.

“Love is the only force capable of transforming an enemy into a friend.” – Martin Luther King Jr. (American civil rights leader)

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Grain markets this morning are mostly mixed on this Valentine’s Day, one where we’re hoping to see U.S. President Trump and China give the grain markets some love. Currently, the complex is watching the trade war talks, as well as the possibility of another U.S. government shutdown (more on this later).

Grain markets are still looking at some of the data provided last week, but all things considered, the February 2019 WASDE report from the USDA was rather uneventful. [1] U.S. soybean 2018/19 ending stocks falling to 910 million bushels on average yields lowered by 0.5 bushels per acre to 51.6 bushels per acre (bu/ac). [2] Average U.S. corn yields were also felled, down by 2.5 bushels from the November 2018 WASDE report to 176.4 bu/ac. This helped push total production, and thus ending stocks lowered down to 1.735 billion bushels. [3]

For wheat, near-record global ending stocks continue to weigh on the complex but DTN reports that inventories in major exporting countries now comprise a little more than one-fifth of all available wheat supplies in the world. [4] For perspective, the 8 countries who hold the majority of wheat exports – Argentina, Australia, Canada, the E.U., the U.S., Russia, Ukraine, & Kazakhstan – held more than one-third of all inventories about 5 years ago before global wheat production started to pick up steam.

This is a significant reduction and basically suggests that the major exporters of the world are getting a little tighter in terms of what they can ship out (AKA bullish). This, combined with some strong export numbers of late from the U.S. and Canada, is why I think you are seeing some better wheat prices as of late. That being said, some of those profits are being taken this morning, as wheat prices are leading the complex lower.

Coming back to soybeans, China’s January 2019 export data showed that they imported just 7.38 MMT of soybeans or 271.2 million bushels if converting metric tonnes into bushels. [5] This was down 13% from January 2018 of 8.48 MMT, albeit it was 28% higher than December 2018’s imports of 5.72 MMT. Through the end of last month, China was holding about 6.19 MMT of soybeans, which is well above levels seen in previous Januarys but below the record high of supply seen back in October.

Trump, Geopolitical Risk has Focus of Grain Markets

On the geopolitical front, OPEC is going after Russia, but in a good way as the oil cartel is looking for a formal partnership with Russia and other countries like Mexico and other former Soviet republics. [6] The Wall Street Journal is quoted as saying “The ability of such an alliance to put a floor on oil prices would run counter to President Trump’s goal of lowering gasoline prices for U.S. consumers ahead of presidential elections next year.”

Back here on this side of the Atlantic, U.S. President Trump is optimistic that the government will not shut down again tomorrow. [7] President Trump is expected to sign up on the border security deal, despite the fact that he was “not happy” with the $1.4 Billion earmarked for the U.S.-Mexico border as that’s well short of the $5.7 Billion he was looking for. [8] As a reminder, should the U.S. government be shutdown, we’re likely back to going dark on data important to the operation of grain markets, namely exports, supply, and demand reports published by the USDA.

The other thing weighing on President Trump’s mind is the trade war negotiations between his team and China. The U.S. trade negotiators, including U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative, Robert Lighthizer, flew into Beijing yesterday and expected to continue trade war talks through the end of the week with Chinese Vice Premier Liu He.

While last week I said that I was not optimistic that the U.S.-China trade war would be resolved before the end of February, President Trump has now said that he’s considering a 2-month extension to the tariff-truce that’s set to expire March 1st. [9] Overall though, I still do not see how the two sides will be able to compromise in the next few weeks, especially with the whole Huawei issue hanging over the talks.

In the meantime, as we get closer to the end of February, we’ll likely see more companies start to talk about changing supply chains. [10] This, in turn, could put even more pressure on China as they think about some of the manufacturing losses that would be put on their economy, which is no longer growing at the more than 7% per annum pace that it’s been cruising for basically the last decade. [11]

Perhaps President Trump is right in thinking that it’ll take another 60 days of pressure on the Chinese economy before compromise starts to be made. Should a trade war end, the grain markets will finally get some geopolitical love that it has been looking for nearly a year!

To growth,

Brennan Turner

TF: 1-855-332-7653
@FarmLead on Twitter

At 7:40 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3272 
CAD, $1 CAD = $0.7535 USD)

Mar Corn: -1.5¢ (-0.4%) to $3.773 USD or $5.007 CAD
Mar Soybeans: -5¢ (-0.55%) to $9.115 USD or $12.098 CAD
Mar Soybean Meal (per short ton): -$2.10 (-0.7%) to $308 USD or $408.79 CAD
Mar Soybean Oil (cents per lbs): unchanged at 29.99¢ USD or 39.80¢ CAD  
Mar Oats: +1.3¢ (+0.45%) to $2.83 USD or $3.756 CAD
Mar Wheat (Chicago): -5.5¢ (-1.05%) to $5.168 USD or $6.858 CAD
Mar Wheat (Kansas City): -4¢ (-0.8%) to $4.90 USD or $6.503 CAD
Mar Wheat (Minneapolis): -1¢ (-0.15%) to $5.788 USD or $7.681 CAD
Mar Canola: -1.4¢/bu (-0.1%) to $10.891/bu / $480.20/MT CAD or $8.206/bu / $361.81/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.

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