Grains closed sharply lower on Monday with livestock mostly higher.
Weather and Higher Yield Ideas Weigh on Grains Markets
Arlan Suderman, Chief Commodities Economist with StoneX, says funds sold aggressively and erased almost all of last weeks gains, as they came back from the holiday and saw no threat in the weather forecast.
“The July 4th is a pivotal time for the grain markets as traders come back after the break and look at weather and if there is no threat they push the short side of the market. That’s what they did on Monday and when support areas were taken out there was additional selling,” he says.
The market is currently pricing in yields on corn above the 181 bushel per acre trend line and instead is looking at 183 to 185 bu.
Stone X raised its corn yield estimate up to 186.9 bpa.
“These firms see rising crop conditions on both corn and soybeans and they have their own models showing yields are increasing. This means the market is also anticipating ending stocks on corn will climb back above the 2.0 billion bu. mark,” he explains.
However, he doesn’t expect USDA to raise yield in the July WASDE on Friday because it’s too early for that.
Grain Markets Disappointed with Lack of China Deal
Grains futures were also disappointed in the lack of trade news from President Trump’s visit to Iowa last Thursday.
The markets rallied at the end of last week, most notably the soybean market, on rumors of a possible deal or purchases.
“They were anticipating the President might announce a deal like the Phase 1 during his first term, and that didn’t happen,” he says.
Increased Tariffs Announced for List of Countries Including Japan and South Korea
On top of that the July 9 tariff extension is quickly approaching and President Trump said Monday he was delivering letters to 12 to 15 countries that had not negotiated in good faith informing them of increased tariffs.
The list of countries included major trading partners, Japan and South Korea, who face an additional 25% tariff on Aug. 1.
However, Suderman says the delayed implementation date gives those countries some time to still negotiate a deal.
Others facing the 25% tariff hike are Tunisia, Malaysia and Kazakhstan: 30% on South Africa, Bosnia and Herzegovina; 35% on Serbia, Indonesia and Bangladesh: 36% on Cambodia and Thailand and 40% on Laos and Myanmar.
Tariffs on BRICS Countries
President Trump also threatened an additional 10% tariff on countries that had aligned with BRICS policies.
This is much lower than the 100% tariff hikes Trump had threatened BRICS nations with before the election but Suderman says they are designed to limit anti-American policies such as a common currency to undercut the U.S. dollar.
Can Trade Deals Overcome Higher Yields and Big U.S. Crops?
Suderman says deals with any or all of these countries may not be enough to change the bearish supply focus of the grain markets at least right away. “Short term no, long term yes.”
The caveat to that would be a mega deal, including with China, but right now he doesn’t see that happening.
In fact, Suderman thinks China is signaling they are going to try to get along without U.S. ag products, if possible.
“China has not purchased any new crop soybeans from the U.S. and normally does in July,” according to Suderman.
Plus China is even buying Argentina meal.
First Argentine Soymeal Cargo to China
Bunge has chartered a 30,000 MT of Argentine soybean meal cargo destined for China, the first shipment since Beijing approved Argentine soymeal imports in 2019. The small initial shipment is seen as test case and could potentially unlock more such trades in the future.
Suderman says China has also bought whole beans from Argentina, “That indicates to me they are trying to make sure they have enough soybeans, outside of the U.S., for their crushers,” he says.
