A billion here and a billion there and pretty soon it adds up to real money

Published on: 15:41PM Jul 06, 2018

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Well, we have now moved from bluster to action as the first shots have been fired and the trade war has begun in earnest.  Overnight President Trump’s administration imposed tariffs on $34 billion of annual imports from China and Beijing responded in like kind.  The White House has also maintained that they are prepared to impose tariffs on all $500 billion worth of imports from China, and as you might anticipate, China said they would return the favor.  The only thing we seem to be missing now is a few derogatory comments about a sister or mother.  Not surprisingly, markets reacted to the news with a yawn.  Keep in mind, all of this trade war rhetoric began back on the 8thof March with steel and aluminum and has just inflated from there. All the while, prices for commodities deflated.  I am not trying to pour salt on the wounds as we did this exercise a couple of weeks ago but since early March, we have seen the price for corn lose around $.50 ($.70 from the June high), and beans have surrendered $2.20.  The exception to the rule has been wheat which is actually $.10 higher, but this required global weather issues and of course is really not a commodity at risk of a US/China trade battle.  For crops growing in the ground, this equates to a loss in value of around $16.2 billion dollars and for inventories on hand (June 1ststocks) another $5.2 billion for a total of around $21.4 billion.  Now as I mentioned in the prior article, all of the losses cannot be laid at the feet of trade tariffs but neither have I included the losses witnessed in the livestock sector since all the rhetoric began, which were substantial as well.  

One of the many unfortunate aspects of this kind of headline story is that it distracts or at least displaces other things that are taking place that the trade should be watching. Yes, the corn market did catch a little weather bump in June, but I suspect it was much more muted than would have normally been the case, not to mention longs were ushered to the exits sooner than would be expected in a normal year. Also, overall usage has been solid.  Not only are we looking at larger domestic use from both the livestock and energy sectors, exports have been solid.  The U.S. Census Bureau released exports by volume for the month of May just this morning and it tells us that versus the same month a year ago, corn exports were up 49.4%, beans 106.1%, soymeal 167.4% and soy oil, 25.4%.  The losers were wheat, down 40.9% and ethanol down 23.5%.  Granted, these figures are technically from the past and markets are always forward-looking.  

As a side note, I understand that Peak Pegasus, a ship loaded with beans from the United States, became a bit of a social media star in China this week.  It was steaming toward the Dalian port and trying to beat the tariff deadline, and its progress was being monitored closely by quite a number of people. Maybe this was a Chinese version “The Amazing Race.” But alas, it failed to make the cutoff.  

This is actually a pretty decent segue for weekly export sales, which were published this morning. For the week ending June 28th, we sold a total of 440,700 MT of corn or 17.35 million bushels of corn. This was 48% below last week and 37% under the 4-week average and below the lower end of the trade estimates.  The top purchaser was Mexico with 144.8k MT, followed by Egypt at 109.2k and then Vietnam with 75.1.  There were reductions from unknown destinations totaling 228.8k MT.  2018/19 sales were not inspiring at 232,100 MT.  Beans sales fared better as we sold 561,600 MT or 20.64 million bushels. This was 57% better than last week and 78% ahead of the 4-week average.  The top purchasers were the Netherlands with 162.1k MT, followed by Pakistan with 134.7k and then Bangladesh at 109.3k. China canceled 366k.  2018/19 sales were 458,700 MT.  Finally, wheat sales were not too bad either coming in at 440,100 MT or 16.17 million bushels.  He we find Taiwan taking 97.6k MT, followed by Mexico with 88.3k and Japan in for 53.2. 

While we still have hours to go before the close, we are witnessing a nice rebound across the spectrum with beans and meal actually leading the charge.  I wondered aloud in comments earlier this week if we had a potential setup for a sell the rumor, or in this case sell the threat, and buy the fact and it would appear that may be the case.  All grain/soy markets are sitting in very oversold positions, and a corrective rebound is certainly in order.