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Are the Grain Markets Waking Up to U.S., China Trade War?
Grain markets sometimes react in strange ways.
Throughout the past year, as we have been negotiating with China to settle our trade dispute, the price of grains dropped pretty much from the first time the word negotiate was mentioned in the same sentence as China. The market apparently knew about the history of negotiating with China. We negotiate, they win! And once again, that was the case, as the past year we negotiated and China was able to buy our soybeans first for a 10% discount, then a 20% discount, and now a 30% discount from what prices were before we started negotiating. And we gave everyone else the same deal.
Now that we’ve bowed to the Chinese for the past year and it’s gotten us nowhere, we finally said “no more negotiating,” and lo and behold, the market bottoms! Words are worthless, it seems, against China. Action (in this case more money from your bottom line) matters.
Last Friday, tariffs effectively doubled against China, and Monday our market bottomed. Maybe 25% more tariffs on $325 billion isn’t enough. Why not 50%? Or 75%? You can effectively tariff a country out of the competition for your citizens’ business.
China pretended to put tariffs on the U.S. products, as well, including soybeans. But that was just a show. The country apparently put a ban on purchasing from the U.S., and all but 2% of the buyers got the memo.
So once the market realized the U.S. woke up, then the short-position selling gig was over. But the next question is, now what?
Corn prices have rallied 26¢, from their low yesterday to this morning’s price, the strongest sign yet that we could have hit a bottom. For 200-bushel-per-acre producers, that’s $52 an acre you lost if you were a seller yesterday morning vs. today – just 24 hours later. Yesterday, there wasn’t a single bullish item on the table – everything was bearish and dark. We suggested in the a.m. comments maybe it was the bottom, as at bottoms it’s always the most bearish. Yet, there is nothing bullish here to cite today, either, as there is no deal with China – our largest customer – on trade. So without that, nothing else matters, right?
But when you consider that we’ve gone down for a year now, to the lowest price levels in years, then perhaps it does make a little bit of sense. Prices have dropped on the negotiations and then non-negotiations with China. Maybe the market understood that negotiations with China never were going to solve our problem, as negotiations with China (and even agreements) never do.
Instead, the market seems more satisfied with action against China – something that does seem to work. Mr. Trump tweeted, this morning, that China should have taken their great deal instead of backing out. (Note the past tense?) Instead, the U.S. will buy its product from someone else or make it domestically. That we didn’t need Chinese products. The longer you wait, China, the worse the deal will be.
Perhaps that is something the Chinese can finally understand –- and probably the only thing they can understand. When Trump tweeted about buying $15 billion of ag commodities (at the new 30% discount) and give them to humanitarian aid targets, it was clear the U.S. was seeking another way to deal with excess production than to dream about an impossible deal with China.
Weather is not quite as favorable in the 14-day forecast today compared with yesterday. The forecast looks wetter in the Corn Belt the next seven days (above-normal precip), as well as the western U.S. The southeast U.S. still has below-normal precip forecast, so that area will at least get some planting done.
Temps are forecast below normal in the northern third of the Corn Belt and the west the next seven days, but the rest of the U.S. (the southern two thirds) will enjoy above-normal temps. Overall, some planting will get done in May, but Northern areas look to struggle much more than Southern areas. This is nothing at all like 2018, when everything got perfect in May (just in time to allow optimal planting in warm soils).
Planting progress is anemic, with corn only 30% planted (36% behind normal) and 10% emerged vs. 29% normally. Soybeans are only 9% planted vs. 29% normally, with cotton 26% planted vs. 32% normally. Sorghum is 24% planted (9% behind normal), sugar beets 63% planted (17% behind), and oats 62% planted (21% behind).
HRS wheat is 45% planted (22% behind normal) and barley 59% planted (13% behind normal), so it’s been horrible planting almost everything this spring.
Soil moisture nationally remains wet, with 93% topsoil rated adequate/surplus (same as last week). Subsoil moisture is also 93% adequate/surplus – the same as last week as well. Soils just aren’t drying much as it’s been relatively cold and wet – keeping planters out of fields. Now things are finally starting to move in mid-May, but already we are likely losing acreage to prevent plant as we just can’t plant a crop in only one third of our normal season (with normal weather).
We’ve lost a lot of time, and it’s likely we will lose a lot of acreage to prevent plant. How much acreage we lose depends on the late planting season weather. Can we get at least some of the lost HRS wheat and corn acreage planted to soybeans? Or will we lose a significant amount to prevent plant? This makes the next three weeks at the end of the planting season extremely important.
About the only bright spot for grain prospects is winter wheat, which continues to show improvement in yield potential. The Pro Ag winter wheat yield model rose another 0.21 bushel per acre this week to 52.15 bushels, which would be the second highest on record behind the 2016 crop. Overall, winter wheat loves cool and wet weather – and that’s exactly what we have this spring (and thus why we can get much planted).
Ray Grabanski can be reached at firstname.lastname@example.org.
Ray Grabanski is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country.
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