Corn and soybeans saw early pressure with doubts about the trade deal with China casting a shadow over prices.
In a statement Wednesday, China’s Ministry of Commerce confirmed there had been a “guiding target” set between the two countries with the goal of “expanding two-way agricultural trade,” but made no mention of the U.S. government’s claimed $17 billion number for U.S. ag product purchases from China.
Meanwhile, China has indicated it would accept some increase in U.S. tariffs to a level agreed upon last year and would continue talks to extend a trade truce. The Commerce Ministry in Beijing said trade teams from both countries would discuss extending the one-year agreement worked out at negotiations in Kuala Lumpur, said a Bloomberg report.
Darin Newsom, senior market analyst with Barchart, says the market was already doubting the deal yesterday, wanting to see proof of sales.
However, China is unlikely to tip its hand with purchases this early, he says, because they don’t want prices to rally and make U.S. commodities more expensive for them to buy.
China Hold Off or Not Fulfill the Deal?
China may be holding off for cheaper prices at harvest, or Newsom says they may make smaller purchases that won’t show up on the daily reporting and instead accumulate in the weekly purchases.
He is doubtful China will uphold the deal anyway based on their past actions.
The other key to when and if China makes purchases of U.S. goods, especially soybeans, will be what happens with weather and Brazil’s crop.
He thinks China may wait to see if Brazil gets their new crops planted and if the fear of a Super El Niño trimming yields will push them to have to buy U.S. products.
Weather, Fast Planting
Newsom also thinks the fast planting pace and no major threats to U.S. production area are also pressuring the grain markets.
In the case of corn and soybeans, there are some spots of the eastern Corn Belt that are too wet for planting, and some of the western Corn Belt is still too dry. However, he thinks overall the crop is in good shape, which is also causing some fund liquidation.
Lower Crude Oil
An additional factor weighing on the grain markets is lower crude oil prices.
There is some profit-taking in the crude oil market despite no resolution in the Iran war and that is spilling over into the corn, soybean and bean oil markets.
Wheat the Exception
The wheat market saw some early strength with recent rains missing some of the driest areas of the hard red winter wheat belt. However, there are more chances in the extended forecast.
Plus, wheat is getting pulled down with corn and soybeans and crude oil.
While the HRW crop may be getting smaller, Newsom says there is still no shortage of wheat in the world.
Bond Market Shows Inflationary Fear
The one part of the marketplace that is showing inflation fear tied to high energy prices is the bond or Treasury market.
Newsom says the 30-year Treasury bond hit 5.165% and is at a 19-year high.
This is driving up long-term interest rates and the cost to borrow money for everyone, including farmers.
This could eventually spill over to curb consumer demand for beef as they see credit card interest rates rise. That could hurt the cattle market even though all the other supply fundamentals remain extremely bullish.
