Grains rally Thursday with livestock lower
Grains Rally on Possible Trace Truce Extension with China, Tariff Cuts
Soybeans gapped higher on the open on Wednesday night on news that China and the U.S. are going to extend the trade truce another year and may cut tariffs. Jim McCormick with AgMarket.Net says this coincides with President Trump posting on social media that China would be buying an additional 8 MMT of old crop soybeans from the U.S. heading into the meeting in China in April between the two country’s leaders.
Key is Will China Lower the 13% Tariffs on U.S. Soybeans?
McCormick says seeing the 13% tariffs lowered will be key to getting private soybean crushers in the market to buy. So will that happen? “It’s hard telling. It’s just going to be all part of the negotiation tactic, Michelle. I mean, the reality is this. This is a political buy. President Trump put tariffs on because he was trying to essentially change China’s business practices. The Chinese have pushed back. They push back by not buying beans. They push back by putting the tariffs on. Now, we are going to get a second round of political buy. And what I mean by that? Economically, it makes zero sense for China to buy our beans. They can buy beans from the Brazilians much cheaper. But they view this deal that if President Trump wants them to buy beans to essentially, let’s be honest, support his base, the American farmer, he’s going to give them something return. That would help a lot. If they would drop that tariff, that 10 % tariff, Michelle, that’d be very good because right now the buying being done by Chinese is the government. And that’s it. If you could get the price more competitive with the Chinese crusher, that would We’d just need more demand for our producers.”
A top Chinese official at the U.S. Embassy spoke at the Top Producer Summit and said China would like to drop the 10% tariff on soybeans but it won’t happen until the U.S. drops the fentanyl tariff first. McCormick says it is likely that will happen as a political goodwill gesture ahead of the April meeting.
Timing of 8 MMT Important
The timing of when China buys the additional 8 MMT is also important because they could wait until after they have secured enough of Brazil’s more cheaply priced soybeans that are being offered as the country is in the middle of a record harvest. “Well, I think it definitely has an impact because when they buy it, when they deliver it. If it’s toward the end of the marketing season, it gets delivered more toward the end of the marketing season, that probably isn’t going to have near the impact that the market’s thinking. The way we’re trading right now, the way we’re pushing the new highs as we speak or the move, the market is anticipating these beans are going to be delivered nowadays. Now, the one thing we need to be careful, Michelle, it’s very, very bullish to see this. But what we’re doing is we’re driving the prices up, in essence, trying to run the prices up on the Chinese, knowing that this is a political buy.” And that was evident in the marketing year low weekly exports this morning at 10.4 million bushels.
How High Will Soybeans Rally?
Soybeans made new highs for the move on Thursday and were trading above key resistance. So will the market rally up to the November highs? McCormick says, “I think they could. I mean, if they do buy it, you know, you’re going to tighten, you know, it depends, like you said, on how quick they buy them. But potentially, you could push these beans back up toward those, you know, in the near -term highs simply because of the emotion. I remember, it was an interesting rally, Michelle. When they rallied, going on because of the lack of the CFTC reports being up to date. We now know what’s going on and we’ll get a better up picture here on Friday of how aggressive the funds are buying into this news story. And that will give us a little bit
better clarity, hopefully at trying to call the top.”
Corn Following Soybeans or Wheat
Corn was also higher on Thursday following soybeans and wheat and with strong weekly export sales of 81.5 million bu. However, it continues to be reluctant to really take off. After the 50 cent rally in soybeans last Wednesday corn barely move and Tuesday was more proof of that with the 100 million bu. cut to corn ending stocks failing to create a rally. " We had what was construed as a bullish crop report earlier in the week. Remember, Michelle, they lowered ending stocks by 100 million due to the fact they raised exports 100 million. That was one of the biggest revisions, you know, that we’ve seen in the month of February that the trade essentially missed. And what did we get out of it that day? We’ve got an unchanged market. So the corn market right now, I think, is feeling the overhead resistance of the producer and farmer selling,” he says. That may pick up going into first notice day at the end of the month.
McCormick is also concerned about the potential for the U.S. to pull out of the USMCA agreement moving forward with Mexico as one of the biggest corn export customers for the U.S. Meanwhile, a deal may have been brokered to get E15 year round but it comes with a trade off of the Smaller Refinery Exemption volumes not being reallocated in the RVOs, which would be near term negative.
Wheat Sees Short Covering, Winterkill Concerns
Wheat futures were also following soybeans higher on Thursday, extending gains from Wednesday. However, he says it is also short covering and winter kill concerns. “I think there’s definitely a little bit of winter kill, a little bit of short -covering, a little bit of following the beans in general. Winterkill is a concern. We have it all the time this time of year, and we’ll see how it is as we come out of the rest of the winter. I know right here in northern Chicago, it feels like we finally have broken winters back. The temperatures are going to moderate and be above normal for the next 10 days, it looks like. And it’s been very cold in Russia, too.”
Cattle Stall After Jobs Report Rally
Cattle futures rallied Wednesday and had a strong close on the heels of a bullish Jobs report. However, the lack of follow through buying is tied to the market running into chart resistance at last week’s highs. Plus, he says February is a slower month for beef demand. “I’m very cautious about the cattle market. The old axiom is you get two chances to sell out of market. I feel this could be the second chance. I think, you know, the market speculators Michelle are also a little bit leery about the screw worm. You know, I know I am when the United States essentially came out and admitted that they are spraying, you know, they’re spraying the sterile flies in Texas. That tells me they’re very worried that this is going to show up in Texas sooner than later. And I wonder what that does when it does show up in Texas. Is that going to be the reason or excuse to open the order, the border back up potentially. Something we need to keep an eye on.”
