Grain and livestock futures rallied on Monday.
China Hopes Fuel Rally
The grains in particular were supported by news of positive meetings over the weekend between Treasury Secretary Scott Bessent and his Chinese counterpart.
This is laying the ground work for what is hoped to be a successful outcome from the U.S. China Summit according to Arlan Suderman, chief commodities economist with StoneX.
“Trump and President Xi have incentive to come up with something positive out of this. They both have issues that they need addressed in their home countries. They both have a desire and leverage to use against the other as well, but they want to make continued steps forward. And so I expect ag to be in the middle of that. I think this is probably one of the more complex negotiations that we’ve had during the Trump era, counting Trump 1.0 and Trump 2.0, a lot of issues that I think ag stays in there,” he says.
Suderman is looking for more clarity on the $17 billion that the White House said that China agreed to back in May. China has purchased
just shy of $4 billion worth of ag products outside the 25 million metric tons of soybeans this year.
China to Drop Tariffs?
Plus, the market needs to see the 10% reciprocal tariffs dropped to lay the groundwork for the $17 billion of ag products to be bought.
Suderman says, “That’s part of the leverage that China is using, saying you lower the tariffs on us, then we’ll drop our retaliatory tariffs. And then we’ll start giving you more specifics on the $17 billion.”
Still he expects rare earth mineral to be one of the main talking points.
Like Phase One?
The $17 billion of ag purchases on top of the 25 MMT of soybeans would put China’s purchases close to $30 billion, which starts to mimic the Phase One deal in Trump 1.0.
However, Suderman says China only bought 60% of that.
“And I think the fact that they bought all 12 million metric tons of what they did in the previous marketing year, and they’re making progress toward all 25 million metric tons in this marketing year shows an increased commitment to wanting to do something. I think there’s more impetus on China to get better access to our vast consumer market. They need our chips in order to continue to develop their AI program. There’s many things that they need from us as well. And so that’s why I’m looking for a little bit more specificity on this,” he says.
Deal Done Before Trump and Xi Meet
The meetings between trade officials of both countries is likely to result in a final agreement before Trump and Xi even meet says Suderman.
“Yeah, the two leaders do not want to meet until they have something pretty well wrapped up, just final discussions needed. So I can almost guarantee you there are low and mid-level negotiators have been talking on almost a daily basis for quite some time. That’s the way the Trump administration operated in 1.0, and I anticipate it is, again, the upper-level negotiators then joined in over the weekend to build on that. So, I anticipate that there will be something ahead of time,” he explains.
That is likely to generate leaks and headlines between now and then that the market will be trading.
China Buying Corn Futures
Rumors that China was buying corn futures ahead of their purchase announcements was part of the reason corn made new highs for the move on Monday.
Suderman says he had not confirmation of that. “We’ve heard that before, but the timing would be appropriate. I think that would be positive for the corn market, depending on the volume, and certainly something that provided some support to start the week.”
Corn Export Inspection Stout
Plus, the corn market saw strong export inspections at 76.3 million bushels which he says is a very strong number for September.
“But that also shows that exporters had no problem finding the exportable corn, that we do have surplus supplies in the United States. Quite different from soybeans right now. But to get that kind of number at a time when Argentina is exporting a record crop and Brazil is exporting new crop, that’s very impressive, suggesting that global corn demand is real strong right now, particularly with Ukraine essentially out of the picture,” he adds.
It is also impressive considering Brazil and Argentina’s corn prices under U.S. corn prices, especially with the strong dollar.
“If we look at export sales for the year to date, we’re, what, three weeks into the new marketing year, but we’ve been selling this year’s supply now for some months. It’s way behind where we were a year ago, but actual shipments are quite a ways ahead. They’re about 40, 45
million bushels ahead of where they need to be this time of year to hit it, and certainly ahead of last year’s pace. That is a good signal going forward for this coming marketing year,” he says.
Adding Geopolitical Premium
Corn and wheat were also putting in some geopolitical premium with the ongoing Black Sea war limiting exports of both crops. This is causing the funds to cover shorts and importers to become nervous.
“It’s going to continue to escalate no matter what the funds want to believe. They’re always wanting to believe that we’re going to have peace there. I will be shocked if we see the attacks on each other’s commodity export logistics stop anytime soon. I expect it to continue and make it more and more difficult for both Russia and Ukraine to export,” he says.
It will also have an impact on what they plant for 2027, because the prices of farmers are receiving are plummeting and they have to have cash flow to put a new crop in.
Importers Becoming Concerned
Importers who have been buying hand to mouth are also becoming more concerned states Suderman.
“Specifically, we know that a lot of wheat customers who buy from the Black Sea, first of all, they had bigger crops than normal, so they were able to delay purchases. But now they’re having to step up those purchases. But they’re tended to buy containers instead of cargos, hoping that things would get straightened out in the Black Sea. But now we’re starting to see some indication of concern. Even Egypt saying they’re going to start diversifying their sources. Now, the U.S. is way down the list as far as cost of alternative supplies. Europe is going to be next in line, and we’re starting to see that market now open up,” he adds.
Weather and Harvest Delays
The market may have also been seeing some buying interest tied to the wet weather over the weekend and harvest delays.
“It’s certainly a concern for farmers, especially in the western Midwest that have had some of those heavy rains. I guess I should say central and west. East, we’re starting to dry out a little bit more seeing a little bit more harvest progress,” he says.
However, the extended forecast is looking a little drier but with cooler temperatures fields will be slow to dry.
“When you look at the soybean industry, the crush plants, we have crush plants that are out of beans and can’t crush. That’s going to impact September crush numbers. It is really pushing basis. Nationally, though, basis is continuing to trend lower like we’d normally expect to harvest, which means that there are other areas that are seeing rapid harvest progress supplying the beans in those areas having a bigger impact than those areas that are running out of beans. So it’s the haves and have nots right now.” he states.
This has created a big rally in soybean meal.
Cattle Surge on Bullish Cattle on Feed
The cattle futures gapped higher on the opening in response to the bullish USDA Cattle on Feed report. Placements for August were down 9.2% and a record low.
Suderman says, “When you look at the miss, 104,000 head miss, that’s about as large as we’ve seen in over two years. And that left the on-feed count just up about .7% from a year ago, but low end of the estimate. Now, that gave us some solid cash prices on Friday, and the market reacted to that, trying to catch up with the cash market. Certainly tighter supplies.”
While the next port will be opened this week in New Mexico the increased supply won’t have a big impact because the market is coming from a bigger deficit than what the market had priced in.
Funds Return to the Cattle Market?
Could this be the kind of catalyst to get the funds back in the cattle market beyond just Monday?
“Whether we can continue that trend going is the question,” he says, “And I think for that, we need to see the strength in the product market. The beef and cash market is certainly doing better than the pork product market right now. That’s a good sign. But we need to continue to see a packer margin slightly in the positive. There’s incentive for them to push the kills a little bit more. And hopefully that’ll help support the cash prices and help support the money coming into the board.”
Lower gas prices would also help support stronger consumer demand for beef. However, he says when adjusted for inflation, prices are still not as high as what they were in 2022.
Crude Oil Falls
While not much has changed with situation to ease supplies the crude oil market was down sharply on Monday. Suderman says the outside market traders continue to want to trade peace.
“They’re expecting President Trump and President Xi to talk about Iran, talk about the Black Sea. Hopefully something positive come out of that. The Iranian president is going to be coming to the United States to speak to the United Nations. They hope that President Trump will meet with President Trump and said he’s willing to meet with them. They’re hoping something positive come out of that. The problem is the president of Iran really isn’t the one in control in Iran. The Revolutionary Guard is, and they’ve showed over and over again that they don’t necessarily agree with what the government negotiators are coming up with. So it’s a fight over who’s controlling Iran.”
So he doesn’t see any de-escalation in either war right now, but yet the market wants to believe the positive.
