Grain and livestock futures are mostly higher early Friday.
Mark Schultz, Northstar Commodity, says the ag markets have handled the escalation of the trade war with China remarkably well this week.
The latest news has the U.S. raising tariffs to 145% on China and they in turn went from 84% to 125% starting April 14.
Yet, the markets are still holding together as Schultz says the worst of the tariff news seems to be dialed in and the trade is starting to gain optimism that trade deals will be struck with other countries around the world soon.
The sharp drop in the value of the U.S. dollar index recently has also been supportive and has helped offset the 10% universal tariffs.
Corn is making new highs for the move with the May and July contracts eyeing the $5 mark with the tailwind of the friendly 1.465 billion bu. ending stocks figure from USDA on Thursday.
The soybean market has been the most impressive in light of the China trade war escalation and is primed, according to Schultz, to post a higher weekly close.
China has been buying soybeans from Brazil this week, with reports of 40 plus cargoes moving, and that has pushed up Brazilian basis levels which is in turn lifting U.S. prices.
“Soybean basis in Brazil is now 60 to 80 cents above the U.S.,” he says.
Weather is also supporting the wheat market with dry conditions returning to the Southern Plains providing some buying interest in wheat and there are still some areas too wet in soft red winter wheat country.
Cattle futures are stabilizing after the reversal on Wednesday and the stock market looking like it has priced in much of the tariff fear.
However, Schultz points out that the China retaliatory tariffs are so high they are now pricing the U.S. completely out of that market.
He says China’s pork and beef business for muscle cuts alone is fairly significant.
“USDA figures indicate that China buys 40 million pounds of pork and 40 million pounds of beef per month from the U.S. and that is in addition to the variety meats and offal,” he explains.
Cash cattle trade has been around $208 in the North so far this week and $204 in the South, which is lower but on a light test.
Cash hogs and pork cutouts have also moved lower this week but that hasn’t phased the market as it continues to be optimistic about other trade deals and demand with a softening dollar.
