Round ???

Published on: 08:34AM Sep 05, 2019

I have lost track of which round this is, but according to both U.S. and Chinese sources, there will a resumption of trade talks between the two nations sometime in early October.  Granted, this will be a month later than rumored initially and will be the first since July, but as they say, better late than never.  As would be expected, deputy level meetings will be taking place in the interim to lay the foundation for this next face to face event, which will be held in Washington D.C., for this go around.  It would appear that not only have the ag markets found a little solace from the news, but equity markets globally have responded positively as well.  While it should come as no surprise but the decision to push ahead appears to be stimulated not over concern about the state of the U.S. ag economy, but rather because the tell-tale ill effects are spreading beyond the ag states and have shown up in manufacturing and other sectors.  An interesting side note, just before the additional 15% tariff went into effect last weekend, Target Corporation told suppliers that they would refuse to accept any cost increases due to the higher tariffs.  One has to imagine that went over like a lead balloon (made in China). 

The weekly export sales report will be postponed until tomorrow morning due to the Labor Day holiday, but we did see an impressive sale of beans announced within the daily system yesterday.  Mexico has purchased 451,766 MT or 16.6 million bushels.  While certainly not the kinds of volumes we used to see when the Chinese market was expanding exponentially but a solid sale nevertheless.  Do you suspect the Mexicans might smell a bargain?

Another unintended consequence of the trade war appears to be a cozier trade relationship between China and Russia.  Earlier this year, China approved imports of soybeans, wheat, and barley from its neighbor to the west and has now approved imports of soy and sunflower meal as well as sugar beet pulp.  

Lest you think that tariffs are not instruments used by many, many nations take note that India raised tariffs on imported vegetable oil from 45% to 50% for a six-month period.  Reportedly, the move is being made in an effort to encouraging local refining. They are the world’s largest importer of veg-oil, and the move would most likely impact palm oil the hardest. 

While it is would be far too premature to suggest it is the beginning of the end, but after reaching up to the highest level traded since May of 2017 when we began this week, the U.S. Dollar has turned tail and posted a couple of sharply lower closes.  Do keep in mind that this may be little more than a technical correction after a sharp rally this summer, but long-term indicators are at an extremely overbought mark, and if the dollar were not being viewed as a key safe haven right now, it would appear we could be in line for a significant high.  I continue to maintain that the commodity sector will not be able to emerge from the doldrums until the dollar has peaked.