Grains ended lower Wednesday, with contract lows in milk and contract highs in cattle.
Grains Fade Trade News
Dan Basse, president, Ag Resource Company, says the grain markets faded the announcements regarding three trade deals, including Japan.
President Trump posted on Truth Social about the “biggest deal ever” with Japan accounting for $550 billion and purchases of agricultural goods, including rice.
However, there were few other details and so Basse says the markets discounted the development.
“Although we have frameworks for trade deals and the Trump administration saying, we’re going to give you a tariff rate that’s higher than where we are today, which seems crazy to even say that, but many of these trade deals are being done at 15 or 20%, which is above the 10% level today,” he explains.
Additionally, Basse says the deals are really only frameworks that could take weeks, if not months to complete and so the market may not see any new ag purchases from these countries for a while.
“We just haven’t filled in all of the spaces, if you will, on the agreement, to understand what it means for corn, soybean, wheat, or other commodity demand. And so with that, the traders are taking the attitude it’s another trade deal, but let’s see the demand and they want to see that coming forward,” he adds.
China Hopes Dashed in Soybean Market
Soybeans were also higher early in the session on optimism about the trade talks early next week between the U.S. and China.
However, Basse says that was squashed by reports from his contacts in South America that China bought 50 cargoes of Brazil and Argentina soybeans the last 10 days.
“That’s nearly 3 million tons of soybeans for late September, October to the Chinese. So if Brazil and Argentina is selling those kind of quantities, the Chinese are not looking at the US market. And what really bothers me is the prices they’re paying in Brazil and Argentina are above the US Gulf. So the Chinese are avoiding us on purpose.”
So far China has not purchased any U.S. soybeans for the new crop marketing year and he is concerned even if an understanding is reached the U.S. could miss the export window this fall.
Will China Eventually Need to Buy U.S. Soybeans?
Basse thinks China may buy eight to 10 million metric tons but that’s well below recent years where they were buying 22 to 25 million metric tons.
“So again, if you take 10 million tons out of the balance sheet to China, that adds around 360 million bushels. My export estimate in a new crop position is 1.5 billion bushels that compares the USDA at 1 .765, so I’m down 265 million bushels already from where the USDA is just based on what we’re feeling on Chinese demand,” he adds.
Grains Remove Weather Premium
Weather has also been less threatening than predicted last week and so the corn and soybean markets have sold off removing weather premium and on ideas of big crops.
Basse says the private estimates on corn yield generally range from 184 to 189 bu. per acre and his firm is on the low end of that at 184.
Pollination Problems Overblown?
Currently, the market is discounting the pollination problems being reported in corn from overly tight tassel wrap.
Basse says that’s because it is scattered and the issue isn’t big enough to be a market factor. “The pollination issues seem to be most prevalent in Illinois, Indiana, potentially Kentucky. This is where that rapid growth occurred but its only certain hybrids and not widespread. So the impact could be only 40 to 50 million bu,”
That is less than a one bushel per acre cut in yield and still equates to record yields and production.
Wheat Pressured by Russian Wheat
Wheat futures also ended lower with a continued failure to confirm a bottom, despite winter wheat harvest nearly three-quarters done.
Basse says while the Russian crop and export forecast has been lowered there have been quality issues with the crop and so it’s being sold as feed wheat and undercutting global and U.S. prices.
Funds Push Cattle to New Highs
Cattle futures pushed into contract and all-time highs again as funds have been adding to their long position and its not just tied to the steep discount futures are trading to cash.
He says regulators are allowing index funds to trade larger position limits and they see cattle as a long term investment opportunity.
Milk Futures Make New Lows
Class 3 milk futures pushed into contract lows on Wednesday following a bearish USDA Monthly Milk Production report.
The results shocked the trade with higher production for June but also revisions to the prior quarter.
Basse thinks the market will need to push down to the $16 to $16.50 level to price this news in.
