Grain futures closed mostly lower on Wednesday:
Corn – 1 ½ cents/bu (Mar @ 3.87 ½ )
Soybeans – 13 ½ cents/bu (Mar @ 9.28 ¾ )
Chi Wheat + 4 ¾ cents/bu (Mar @
Cdn $+0.00090 (76.68 cents)
WTI Crude Oil -0.42/barrel (57.81)
Today, the grain markets were focused on the Phase One Trade Agreement between the USA and China. There was a signing ceremony at the White House late this morning, at which time the 80 plus page document was released publicly. The agreement released did not include an annex that breaks down specific commodity volumes, which was consistent with what the USA Trade Representative and Treasury Secretary had indicated yesterday. Such an annex is said to exist, but the Chinese did not want it to be released publicly (supposedly for fear of antagonizing their domestic farm population). Of course, the market is disappointed by the lack of concrete volume commitments in what was presented today.
What we do know is that, if using 2017 pre trade war ag purchases as a bench mark ($24 billion dollars), China has committed to buy at least $12.5 billion more (ie 36.5 billion) in 2020, and at least $19.5 billion more in 2021 (ie 43.5 billion). Either one of those import totals would represent an all time record high volume of USA agricultural imports for China. Those imports, if realized, should be very friendly for USA ag prices. However, since we don’t know the commodity breakdown of what China will buy, it is difficult to get too ramped up about the deal. Furthermore, the trade agreement includes language that suggests that the target volumes will be achieved, “as market conditions dictate”. That phrase raises more questions than it answers, but is assumed to mean that USA commodity prices still need to be competitive with the rest of the world, and USA ag imports to China cannot disrupt their domestic agriculture industry.
The soybean market traded both sides of unchanged until the trade agreement translation was released, at which time the lack of detail allowed the bean complex to weaken, and that ultimately became a slippery slope lower in the final 90 minutes of trading, with soybean futures closing right near it’s lows for the day. Earlier in the session, there was actually some positive market news, as China was confirmed to have bought 126,000 tonnes of beans in a USDA “flash” daily sales report. As well NOPA released it’s December soybean crush numbers which showed that last month, USA crushers processed 174.8 million bushels of soybeans, an all time record for December, and the 2nd biggest crush month on record. The December totals were 3 million bushels higher than the average trade guess, and a full million bushels more than the highest estimate going into the report. Brazilian soybean prices slid today on improved production prospects and a lack of export demand. That, combined with the ambiguity from the trade agreement, was enough to bring aggressive sellers forward.
While corn ended the day lower, it was not as negative as the soybean performance. Corn volumes are not referenced in the trade agreement either, and corn is actually only contained within the context of cereal imports. There is reference to ethanol and to DDG’s, but again, with no volumes detailed, it remains a huge question mark in terms of what, if any, corn and corn products might be purchased by China. Domestically, USA ethanol production jumped by 33,000 barrels per day last week. While ethanol production levels were pathetic in fall, we have seen USA ethanol production soar in the past 2 months, with last week’s numbers only representing the 4th time in the past 4 years that domestic production has exceeded 1,090,000 barrels per day.
Wheat rallied as much as 10 cents/bushel higher today, before being pulled back by the weakness in beans and corn. As with the other grains, no concrete wheat import targets were included in the trade agreement today, but the rally in wheat over the past 6 weeks was never really about Chinese demand. If China bought wheat from the USA, then that would be a reason for the wheat market to explode higher, but cold USA Plains weather, and rising world wheat values is what is triggering the wheat rally right now.
Tomorrow morning, the USDA will release it’s Weekly Export Sales Report (for the week ended Thursday, January 9th). This sales report will likely be watched more closely than most, as it will come from the first full business week since the Christmas season began. Sales expectations are muted, after last week’s sales brutally low totals. Expectations are listed below, in thousands of tonnes:
Trade Estimates Last Week Last Year
2019/20 Corn 400 to 800 161.9 1009.4
2020/21 Corn 200 to 250 0.0 4.9
2019/20 Soybeans 400 to 800 335.5 1088.6
2020/21 Soybeans 0 to 50 3.4 63.1
Wheat 200 to 500 80.6 595.8
On the day today, funds were thought to have been sellers of 7,000 corn contracts (short 89,000), sellers of 8,000 soybean contracts (short 14,000), and buyers of 5,000 Chicago wheat contracts (long 43,000).
One would expect grain futures to trade both sides of unchanged overnight, with a bias to be higher by the morning. The markets were disappointed by the lack of concrete details in today’s trade agreement release, but fundamentally, little has changed since the release of the USDA January Crop Report last Friday. We still have to wait to see what China does on the buying front. Tomorrow’s export sales should give us better direction following it’s release.