So, as it turns out, the pleasant surprise that the U.S. and E.U. have agreed to put away the clubs we were prepared to beat each other with and focus on cooperatively addressing Chinese trade barriers may not be enough to sustain a rally, but it certainly helped markets take a step in the right direction. If we were to close right now, for the week, December corn would be up 15-cents, November beans 14-cent, and December wheat up 16-cents and in each case and would mark the second week in a row of higher closes. Granted, while the gestures may have been primarily ceremonial, you buy more beans and energy and we will not up the taxes on your cars, it is the underlying sentiment that matters and ideally suggests that these economic fig leaves will be extended to others as well. Indeed, Treasury secretary Steve Mnuchin commented yesterday that the U.S. was ready to push forward with trade talks with both Canada and Mexico and told CNBC that he was, “hopeful that we’ll have an agreement in principle in the near future.” That would be good news. While this may only be smoke forming for now, maybe the fire will soon arrive.
Knowing that government officials get to see the data before we commoners, one has to suspect that part of the willingness for better trade relationships was prompted by the economic reports that were released this morning. Second quarter GDP was the strongest posted since the third quarter of 2014 coming in at 4.1%. While this was well anticipated by economists, and as normal, primarily driven by consumer demand, special note was made that part of the strength was directly attributable to a push in soybean exports, trying to get ahead of the July 6thChinese tariffs. There also appeared to be front-loading of other commodities impacted by tariffs as well. The reality then becomes, unless the trade issues are resolved, the factors that provided a boost in the 2ndquarter could then become a drag on GDP numbers in the 3rdquarter and beyond.
Nice exports sales report this morning in the daily system. 270,000 MT of corn to unknown destination and 154,100 MT of beans also to unknown. Both sales were for the 2018/19 crop year.
Not much action in the macros as we finish out the week, but I would like to point out the overall action in the U.S. Dollar. From late April into late June, the dollar pushed higher and nearly retraced 50% of the 2017/18 decline. Since that time though it has been stuck between 94 and 95 and in the process has seen technical indicators move back into the overbought zone. It would appear that this index is teetering on the edge of another swing lower. If correct, it should at least provide a psychological boost for the commodity trade.
Finally this week, we have concentrated on beans, corn, and hogs as the primary ag markets that have been negatively impacted by Trade Tariff Terrors this year but other crops have been impacted as well. It turns out the almond farmers have been feeling the pain as China, Turkey, and India, all impacted by the various tariffs and all major importers of almonds, are threatening retaliation. Actually, the EU was as well, but that may have been averted this week. The big question may be where else can they get this nut from, as the US has a 71% share of the global market? Spain comes in second place with 11% share and Australia third with
6%. Of course, as far as the almond producers are concerned, any loss of market share is not good, particularly in light of what should be a record harvest this year. While not as severe as the breakdown in soybeans, the result of this threat has been a 14% drop in price since all the tariff talk began in March.