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Could it be that the light we see flickering at the end of the tunnel is not a train after all? Soy and corn markets evidently believe so as news that China has now provided a written response to the Trump administration with an outline of concessions they will be willing to discuss has provided the most hopeful sign that the trade ice could begin to thaw between them and us. Needless to say, markets that have been starved for positive demand news have reacted quite positively this morning. I think we can be confident in believing this is only a preliminary volley, and with any negotiation will probably be dismissed, but at least it would appear to open the door a crack. Hopefully, markets do not get too carried away, thinking there will be a quick resolution and some kind of deal will be signed at the G20 summit later this month as that could lead to disappointment. But, what do I know? I thought the Cubs would have been back in the World Series this year.
While it would appear that the trade war between the U.S. and China is the number one threat to U.S. agriculture and most specifically beans, globally there would appear to be a growing number of other risk factors. The head of the agri-commodity unit at Rabobank, Stefan Vogel, finds it “difficult to remember a time there were so many threats to food commodity prices on so many fronts.” He lifted up not only the trade war and the disruptions that can cause but also the African Swine fever outbreak in China and supply and biosecurity issues that has created as well as an outlook for an 80% probability that the next El Nino is forming and the uncertainly/risk that can create for weather conditions. As I commented in the weekend newsletter, I believe the ag commodity sector, which has been inundated with negative fundamentals for years, appears set to emerge from the ashes and it will not take much of a problem to make it take flight.
For the immediate though, there appear to be few issues from the supply side at least. There has been significant rainfall in Argentina causing some planting delays, but as we know, Brazil appears to be off to a great start. It also turns out that the EU corn crop may not have suffered as much as once believed. Strategie Grains released updated estimates and believe that solid eastern European corn production more that offset the problems in western Europe and project a crop of 60 MMT. This would be slightly above 2017 production of 59.4 MMT. They did trim the barley crop 400k MT to 56.1 MMT, down 4% from 2017 and left wheat production unchanged at 127 MMT, which would be 11% lower than the previous year.
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