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3 Big Things Today, April 25

Wheat Futures Higher Overnight; Chinese Expansion Won’t Diminish U.S. Ag Dominance.

1. Wheat Futures Higher on Short Covering After Price Drop

Wheat futures rose, heading for a second straight day of gains, on short covering after prices fell to the lowest level in a week.

Futures had declined on speculation that rain would fall in the Southern Plains. While the area saw some precipitation, it was spotty and not as widespread as forecast. That led investors and hedgers to buy back some of their short positions.

Soybeans were also higher in overnight trading on bargain hunting. Prices earlier this week fell to the lowest in almost three weeks, prompting some buyers to enter the market.

Fundamentals haven’t changed for wheat, as dry weather persists in the Southern Plains, though global and domestic inventories remain at elevated levels.

Corn and soybean prices, while higher overnight, likely will remain capped, as planting accelerates on dry weather in most of the Corn Belt, analysts said.

Wheat for May delivery rose 2½¢ to $4.86¾ a bushel overnight on the Chicago Board of Trade, while Kansas City futures gained 3¢ to $5.15 a bushel.

Corn futures added 2¢ to $3.92 a bushel overnight.

Soybean futures for May delivery rose 4¼¢ to $10.38¼ a bushel. Soy meal added $2.60 to $378.90 a short ton, and soy oil fell 0.01¢ to 31.26¢ a pound.

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2. Foreign Investment by Chinese Companies Doesn’t Mean Demise of U.S. Dominance, USDA Says

Chinese companies have made significant investments in foreign agricultural ventures in recent years, but profitability and sustainability have been fleeting, according to a report from the USDA’s Economic Research Service.

China, for a while, was a big investor in foreign land. Companies would often snap up land in other countries to expand their agriculture holdings in a bid to profit from the expanding need for food security back home, the report said.  More recently, however, companies have been looking toward mergers and acquisitions to expand.

State-owned COFCO, for example, has been looking to gain more control over commodity trading, processing, and logistics. Bright Foods, another state-owned entity, wants to assemble various companies and park them under its umbrella.

WH Group, which is privately owned, acquired Smithfield Foods, the world’s largest pork processor, and New Hope Group, China’s largest animal feed company, has diversified from feed mills in neighboring countries to joint ventures with Australian and New Zealand firms, the USDA said.

Such initiatives are encouraged by the government, as banks formulated strategic plans, offered loans, and supplied training and information services to help companies expand overseas. Chinese companies, however, may not be moving where you think.

“Apart from the large 2013 acquisition of Smithfield Foods, relatively little Chinese investment has targeted U.S. agriculture,” the USDA said. “Statistics for 2014 show that North America received only 2% of China’s farming, forestry, and fishing investment, the smallest share of any continent.”

Only two or three Chinese investments are made annually in the U.S. food and agriculture, most valued at less than $10 million, the report said. Statistics that track farmland holdings in the U.S. show only 12 to 25 Chinese acquisitions annually from 2008 to 2013.

Still, the amount of investment and the profitability of many ventures are overstated, the ERS said. A number of studies found the scale of many Chinese agricultural projects falls short of what was originally planned. Few projects were profitable and relatively few investors brought products back into China as planned, according to the report.

Inexperience in global markets, the lack of language skills, corruption, and political instability were all cited as factors.

While Chinese investments overseas may curb the U.S. share of the Chinese market for some agricultural products, it’s unlikely overseas investment by companies from the Asian nation will be enough to fully supplant America as the go-to provider of most goods, the ERS said.

“The United States’ abundant endowment of productive farmland, leadership in agricultural technology, efficient management and marketing, and skilled and experienced managers are all advantages that may help it retain its role as China’s leading supplier of agricultural imports, regardless of where Chinese companies choose to invest,” the USDA said in the report.

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3. Corn Belt Weather Maps Mostly Dry Rest of Week, Flooding Continues in Upper Midwest

Weather maps are showing mostly dry weather in the Midwest again today, which will further improve chances that planting has gained steam this week.

Forecasts are calling for some dense fog in parts of Illinois and Indiana, and some precipitation is in the cards for parts of central Nebraska starting next week. For now, the Corn Belt looks mostly dry, according to the National Weather Service.

Corn planting was only 5% finished as of Sunday, well behind the prior five-year pace of 14% for this time of year, according to the USDA. No corn had been reported planted in Iowa in a week when 11% is average.

Flooding continues in parts of South Dakota, Iowa, and Minnesota this morning, as several rivers and tributaries overrun their banks amid melting snow. Rivers near Brookings, Mitchell, and Sioux Falls (in South Dakota), as well as Spencer and Storm Lake (in Iowa) were all running at high levels. Waterways in Marshall, Windom, and Pipestone (in Minnesota) were also higher than normal, according to the NWS.

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