That didn't go so well

Published on: 09:57AM May 19, 2020

Ah, Mate, that didn't go so well.  As we reported yesterday, representatives from China and Australia met yesterday to try and iron out a few of the wrinkles that developed in their trade relationship, but for the ag sector in Australia, it would appear the shirt was left even more crumpled than when they began.  China is immediately implementing an 80.5% tariff on barley from that nation.  Australia has been supplying over half of the barley imported by China, worth somewhere around $1 billion per year of business, but this a product that is widely available elsewhere so beer drinkers in China can take a sigh of relief.  This latest move comes on the heels the suspension last week by China of beef imports from four of the largest meat processors in "the Land Down Under," and Beijing insists that it has nothing to do with the fact that Australia has proposed an investigation in the way China handled the outbreak of COVID-19.  They also stated that the tooth-fairly is real, and you will get warts if you touch a toad.  Realistically, this seems to be more about the message as this point, as for all the business conducted between these two nations, barley and limiting some cattle do not represent a significant percentage.  It is worth noting, though, that it seems that when these spats erupt, the first ammunition of choice appears to be food, and farmers end up with the short end of the stick.  Does this mean politicians think agriculture is of crucial importance or just a pawn for them to toy with?

The corn planting pace slowed up some last week, no doubt due to the wet conditions that have spread across much of the Midwest, but corn planting still moved ahead 13% and stood at 80% by the weekend. This places us 9% ahead of average and a whopping 36% ahead of last year.  Emergence stood at 43% versus the average of 40%.  Bean planting advanced by a similar amount, 15%, and has reached 53% complete.  This compares to an average of 38%.  Cotton planting stood at 44% compared to the average 40% and sorghum to 32% versus 34%.  Winter wheat conditions slipped another 1% last week and stood at 52% good/excellent, and 56% of this crop is now headed, compared with an average of 62%.

Across much of Europe, warm and dry conditions have prompted MARS, the European Union crop monitoring service, to trim production estimates for that region. Yields for soft wheat are projected to be down 4.7% from last year and barley down 7.8%, and rapeseed now expected to be more than 4% below average.  The only major crop that is not projected to take a hit at this point is corn.

In the Southern Hemisphere, the Buenos Aires Grain Exchange estimates that soybean harvest has reached 87% complete and corn 40%.  They continue to experience shipping issue on the Parana River due to low water levels and the collapse of the riverbank south of Rosario.  In Brazil, rains have brought some relief for safrinha corn but may be too little too late to help much of it. Agroconsult has lowered their estimate for the safrinha crop to 72.2 MMT, compared with last year of 76.7, and has taken their total corn estimate down to 99 MMT.  This compares with the most current USDA of 101 MMT and Dr. Cordonnier at 96.  While this comes as no surprise, Brazil continues to export beans at a blazing pace, and during the first two weeks of this month has moved another 8.8 MMT.  Since the beginning of the calendar year through April, they have exported 36 MMT, of which 26.5 has gone to China.  One final note on Brazil for the week it was reported that farmers in that country have now sold over 80% of their beans for the current crop year and 28% of next year's intended production.  This compares with an average for this date of 60% and 7% respectively.  A similar pattern in corn.  It would appear they are not counting on the Brazilian Real to remain at these depressed levels.

Last but certainly not least, news that there have been positive results from the test of a potential coronavirus vaccine lifted equity markets higher in response.  Granted, it does not seem like it takes much incentive to excite buyers in that arena, but it would undoubtedly seem justifiable if this turns out to be correct.  What may have been overlooked by many, though, was the trade in commodity indexes.  A couple of weeks ago, I pointed out that the CRB Index was looking suspiciously like a market that had reached a bottom and just needed an excuse to turn back higher.  While there is no guarantee that we can hold, note that the cash index gapped higher this week and up through levels that have provided resistance as of late.  Will a rising tide begin to lift all the boats?