US-China negotiation rumors driving markets

25.02.2019

Wheat

The wheat market experienced sharp losses on the week as Matif Wheat futures pushed world values lower. Matif Wheat futures pushed below major support at $193.25 but did recover above that level in Feb. 21 trade.

The euro rebounded on the week and the U.S. dollar was lower to the $96.50 area. The tough thing though is that this currency exchange since the first of February has flipped in favor of European wheat values on the world stage.

France AgriMer reports 85 percent of the French wheat crop in good or excellent condition. There was also a report out that demand from North African countries has been declining, which is another reason Matif futures have been under pressure recently. French prices have been $8 to $10 per metric ton lower in the last 30 days.

Australian wheat production is estimated at an 11-year low of 17.3 million metric tons, but it was slightly higher than last month's estimate which threw more cold water on the market.

Weekly export inspections totaled 357,000 metric tons (13.1 million bushels) for the week ending Feb. 14. Cumulative inspections total 578.6 million bushels, down 10 percent from a year ago. Egypt purchased 360,000 metric tons of wheat with France earning 180,000 metric tons and Russia, Ukraine and Romania earning 60,000 metric tons each. The U.S. had no offer in this tender which provided further selling pressure to the market in Feb. 20 trade.

The market did rebound slightly in Feb. 21 trade, following corn and soybeans higher on a positive announcement that China will purchase $30 billion in US ag products.

The U.S. Department of Agriculture's Ag Outlook Forum estimates all wheat plantings at 47 million acres. If you take the February USDA estimate of 31.29 million acres of fall planted wheat, that would equate to spring wheat acres of 15.71 million.

For the week ending Feb. 21, March contracts for Minneapolis wheat were down 15.25 cents at $5.5775, down 17.75 cents at $4.865 for Chicago wheat, and down 21.25 cents at $4.5525 for Kansas City wheat.

Corn

China pledged to spend $30 billion to import U.S. agricultural goods including corn. The removal of anti-dumping and anti-subsidy tariffs on U.S. dried distillers grains, a co-product of ethanol production is said to be part of the negotiations. This sparked 7 cent gains in the Feb. 21 session.

Some private forecasters are estimating that U.S. corn ending stocks could decline 250 million to 350 million bushels if China becomes a significant buyer. Weekly export sales and inspections reports will become vital to confirming whether China commits to this pledge. Weekly export inspections totaled 942,000 metric tons (37.1 million bushels) which wasn't a bad number. Inspections total 951.5 million bushels, 45 percent higher than last year.

The USDA Ag Outlook Forum estimates 92 million acres of U.S. corn plantings for 2019, up from 89.1 million acres last year. This roughly 3 million acre increase has been consistent with many recent private forecasts.

Recent private estimates have Brazil corn production at 92 million to 93 million metric tons and Safrina second crop corn planting at 50 percent. Argentina is estimated at 45 million metric tons compared to USDA at 46 million metric tons.

Weekly ethanol production was 6.972 million barrels, down 3.21 percent from last week and down 6.74 percent from last year. Stocks as of Feb. 15 were 23.913 million barrels, up 1.9 percent versus last week and up 5.1 percent last year. This reflects the sixth highest weekly stocks total on record. Ethanol production is running 3 percent behind last year's pace over the last 14 weeks. If this pace continues, it is likely that USDA will have to revise downward the 5.575 billion bushel corn for ethanol usage estimate. For the calendar year, U.S. gasoline demand is running 0.2 percent below last year.

An article from Reuters stated that federal officials have broken off talks with California over the Trump administration's plans to roll back higher vehicle fuel economy standards. The California Air Resources Board has filed suit to stop the federal administration from rolling back fuel economy standards for 2022-2025. Last fall, the administration proposed a rule that would keep emissions standards at 2020 levels moving forward. The freeze is estimated to result in more than 500,000 barrels per day in oil consumption by the 2030s. Another article from Reuters stated that acting Environmental Protection Agency administrator rejected a proposal from staff that would have reduced biofuel targets, stating that the ethanol target was too low. The EPA has recently made statements that they plan on having a rule in place by the June 1 summertime driving season regarding E15 fuel.

Soybeans

The ag markets got a needed boost Feb. 21 as expected soybean acres came in lower than expected and Bloomberg reported that China is proposing to buy an additional $30 billion a year worth of ag products to get a deal done. These purchases are understood to be on top of what they usually purchased ahead of the trade war. China imported $24.2 billion worth of ag products in 2017. If you add $30 billion to that, the U.S. could be looking at purchases of ag products from China of $54 billion a year. It is yet to be seen if this will turn the tides and get an agreement in place.

U.S.-China negotiators met in Washington after meeting in China the week prior for another round of talks to see if they can find common ground before month's end. The March 1 U.S.-China tariff deadline is coming up quick, but Trump has now come out and said that it may not be a hard deadline if talks continue to progress.

Talks with China are the only thing that seems to matter at the moment, with South American weather and more cases of swine flu in the southeastern Asia countries taking a backseat. Soybean prices are still holding up better than they could be with the 910 billion bushel U.S. ending stocks number hanging over the trade's head. A chance of an agreement between the U.S. and China is the only thing keeping bears at bay for now.

Early in the week, March soybeans dipped below $9 for the first time since Jan. 22 but were able to bounce off the lows back above the $9 mark. March soybeans closed at the 100-day moving average of $9.025. The 2019 Agricultural Outlook Forum was headlined the morning of Feb. 21 by acre estimates for this coming year. The USDA is expecting 85 million acres for 2019, versus 89.2 million last year. This is a half million less acres than the USDA 82.5 million started with in their November baseline projections. Average market expectations were at 86.14 million acres (84.5 million to 91 million range).

Soybean weekly export inspections totaled 37.9 million bushels for the week ending Feb. 14, up from 35.3 million bushels for the same week a year ago. Inspections for 2018-19 total 869.5 million bushels, down 36 percent from a year ago and far below USDA's estimate for an 11 percent reduction. Total soybean inspections remain bearish in early 2018-19.

Current support for the March contract is at $9.02. The five-month high of $9.4175 would be considered major resistance. March soybeans were up 3.5 cents for the week ending Feb. 21.


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