Chinese Trade Concerns Linger

December 16, 2013 12:14 AM

What Traders are Talking About:

Overnight highlights: As of 6:00 a.m. CT, corn futures are trading around 4 cents lower, soybeans are 2 to 5 cents lower and wheat futures are fractionally to 5 cents lower with SRW contacts leading losses. The bearish tenor is expected to continue into the daytime trading hours amid a lack of supportive news. Cattle and hog futures are expected to open the week with a mixed tone.


* Chinese trade concerns linger. Corn futures continue to slump amid concerns China will reject more shipments of U.S. corn due to the presence of MIR 162 (Syngenta's Agrisure Viptera), which China has not approved. While more rejections are almost certain, it's interesting that some cargoes of U.S. corn are being allowed to unload in China. That, at least on the surface, gives the impression that this is a trade spat more than concern over an unapproved GMO trait. There are also growing concerns China will cancel some of the U.S. soybean cargoes it has aggressively bought this fall. China has 10.834 MMT of unshipped U.S. soybean purchases on the books. That’s up 65% from year-ago and the largest outstanding sales in the last five years. Many believe China is buying "insurance" in case there are late-season crop problems in Brazil or logistical issues/shipping delays with Brazilian beans, like there were last year. As Brazil moves closer to realizing it's record crop, the threat of cancellations increases.

The long and short of it: Chinese demand remains the key market factor for the corn and soybean markets heading into the end-of-year holiday period, and that's a currently a source of pressure on corn and soybeans.

* Mexico restarts corn and sorghum import tariffs. Mexico's ag minister announced last Friday the country was restarting import tariffs on corn and sorghum that had been scrapped since 2008 for corn and 2012 for sorghum. Corn imports into Mexico will now be taxed at a 20% rate, while sorghum imports will incur a 15% tariff. Unclear is whether these tariffs apply to U.S. products. The U.S. exports 15 MMT to 20 MMT of corn and sorghum to Mexico annually. Some industry sources believe the issue is linked to the ongoing country-of-origin labeling (COOL) dispute with between the U.S. and Mexico (and Canada).

The long and short of it: Sources tell me they do NOT believe this can impact U.S. prdoucts due to NAFTA, but that's still uncertain. If it does include U.S., it would be a major story.

* Chinese manufacturing growth slows. Growth in China's vast manufacturing sector slowed this month, according to initial readings, but data remains above the expansion threshold. China's flash HSBC purchasing managers' index (PMI) slipped to a three-month low of 50.5 compared to 50.8 in November, but that's still the fifth consecutive month with a reading above 50, which denotes overall expansion in the sector. Of note, the sub-indexes for new orders and new export orders were up from November.

The long and short of it: There's nothing to be overly concerned about since HSBC focuses on smaller manufacturers and not China's biggest factories... and this data is only preliminary. Plus, the data still signals China's manufacturing sector is expanding, just at a slower rate than before.


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