Is this the start of something worrying?
Some commentators were indeed seeing it as a pre-emptive
strike China's increase to eye-watering levels its tariffs on imports of US distillers' grains (DDGs), a feed ingredient manufactured
as a byproduct of corn (usually) ethanol
Chinese importers of DDGs will, for five years starting on
Thursday, have to pay an anti-dumping duty of 42.2-53.7%, plus an 11.2-12% anti-subsidy
tax, the country's Ministry of Commerce said.
That represents an increase from rates of 33.8% and 10-10.7%
respectively which were introduced in September by China, which believes the workings
of Washington policy and subsidies give the US an unfair advantage in DDGs
This at a time when China is trying to erode its own huge
stocks of corn (from which DDGs are derived, and which DDGs are used by some
livestock producers to replace, although they are more usually seen, having
elevated protein levels, as competitive with soymeal).
'Trade war begins'
This move may imply a back-up of DDGs in the US, curtailing
domestic corn and soymeal use, unless traders can find alternative markets.
Forecasts for USDA Dec 1 US grain stocks estimates, (year-ago figure)
Corn: 12.30bn bushels, (11.238bn bushels)
Range of estimates: 11.60bn-12.70bn bushels
Soybeans: 2.935bn bushels, (2.715bn bushels)
Range of estimates: 2.745bn-3.119bn bushels
Wheat: 2.056bn bushels, (1.746bn bushels)
Range of estimates: 1.828bn-2.158bn bushels
Sources: USDA, Reuters
China imported 3.0m tonnes of DDGs in the first 11 months of
last year, although that was a drop of 53%, as the country's initial moves to
curb imports, and fear of duties, fed through.
(The US Grains Council, which promotes US grain exports,
last week flagged success in opening up Irish and Israeli markets to "significant
quantities" of DDGs and of corn gluten feed.)
What is more significant is whether Beijing's move
represents a step towards the trade dislocations which Donald Trump's election
as US president has appeared to make more likely.
"The China-US trade war begins," was how John Clemmow, at
Barclays, headlined the story.
How this might play out in ags, of which the US is a big
exporter, and China a huge importer, is not clear.
(For instance, China could not, even if it wanted to, meet
all its soybean import needs without
buying a large chunk from the US.)
If corn investors were worried about China's move, they
weren't showing it in early deals, when Chicago's March contract was lower, but
by a modest 0.2% to $3.57 ½ a bushel as of 09:40 UK time (03:40 Chicago time).
And the trade does have plenty of other issues to factor in,
such as Thursday's slew of US Department of Agriculture data, including grain
stocks statistics, which have a habit of sending prices swinging, besides the benchmark
monthly Wasde world crop supply and demand report.
Furthermore, there is South American weather to consider
Forecasts for US 2016-17 carryout stocks data, January 12 Wasde, (current figure)
Corn: 2.385bn bushels, (2.403bn bushels)
Range of estimates: 2.206bn-2.80bn bushels
Soybeans: 468m bushels, (480m bushels)
Range of estimates: 407m-510m bushels
Wheat: 1.148bn bushels, (1.143bn bushels)
Range of estimates: 1.113bn-1.340bn bushels
Sources: USDA, Reuters
"South American weather forecasts are giving the trade a
headache and have been the push and pull in the market over the past month,"
said Benson Quinn Commodities.
"The Brazilian outlook is improving with rains forecast
across drier northern regions while an overly wet northern Argentina and dry
southern Argentina could be leading to some crop losses."
Although the focus has been more on soybeans, "there will be
some corn acres lost due to flooding in central Argentina," said Michael
Cordonnier at Soybean and Corn Advisor, noting that the ideal sowing window for
the grain has already closed.
"The corn impacted the most will be the latest planted corn
that was still relatively small during the recent wet episodes."
Still, he forecast that Argentine corn area lost "would be
less than 100,000 hectares" – significantly less than that for soybeans
"Combining the loses from flooding and drought, the 2016-17
Argentine soybean acreage could decline as much as 600,000 hectares or more
from initial estimates or approximately 3%," Dr Cordonnier said.
Benson Quinn Commodities said that soybean futures "have found
support as private analysts cut Argentine production and producer selling is
absent from the market".
Argentina's Rosario Exchange pegged the domestic soybean
crop at 52.5m tonnes, well below the 57.0m tonnes forecast by the USDA.
Chicago vs Dalian
Still, the worries were not enough to enable further headway
in soybean futures in early deals, with Chicago's March lot easing by 0.1% to
$10.12 ¾ a bushel, trapped between its 20-day moving average (to the upside)
and the 200-day moving average regained in the last session.
Forecasts for world 2016-17 carryout stocks data, January 12 Wasde, (current figure)
Corn: 221.94m tonnes, (222.25m tonnes)
Range of estimates: 218.0m-225.0m tonnes
Soybeans: 82.58m tonnes, (82.85m tonnes)
Range of estimates: 79.60m-84.20m tonnes
Wheat: 252.01m tonnes, (252.14m tonnes)
Range of estimates: 250.23m-254.0m tonnes
Sources: USDA, Reuters
Soybeans' decline was not helped by muted performances by the
soybean processing products, with Chicago soymeal
for March easing 0.3% to $316.60 a short ton, and far underperforming the 1.3%
rise to 2,810 yuan a tonne in the May contract on China's Dalian market.
(The diverging fortunes of these two contracts are
consistent with ideas of shorter supplies of DDGs in China, and longer ones in
meanwhile, edged 0.1% higher to 35.69 cents a pound, contrasting with a 1.7%
rebound to 3,134 ringgit a tonne in prices of rival vegetable oil palm oil in Kuala Lumpur.
But then, soyoil did outperform in the last session, when palm
oil prices were weighed by data showing bigger-than-expected Malaysian
proved the worst performer of Chicago's big three, falling 0.5% to $4.24 ½ a
bushel for March delivery, and having trouble breaking above its 200-day moving
average, on a continuous chart.
One potential ingredient for a wheat rally, evidence of cold
or dryness damage to winter crops, is proving hard to pin down.
"Rain is still in the forecast for the southern Plains this
weekend, while the Black Sea crop had enough snow coverage to escape
significant damage from cold temperatures," Benson Quinn Commodities said.
Agritel concurred, saying that "low temperatures recorded in
the Black Sea area should not impact too much winter crops, thanks to snow
And while Europe is expecting cold weather next week too, that
should not cause too many problems either.
'Upward trend intact'
better, adding 0.2% to 73.36 cents a pound in New York for March delivery, and
recovering a few more of the losses incurred in Monday's reversal.
Forecasts for US winter wheat sowings, (year-ago figure)
Hard red: 24.954m acres, (26.586m acres)
Range of estimates: 22.60m-26.664m acres
Soft red: 6.662m acres, (6.020m acres)
Range of estimates: 4.80m-6.60m acres
White: 3.473m acres, (3.531m acres)
Range of estimates: 3.20m-4.30m acres
Total: 34.139m acres, (36.137m acres)
Range of estimates: 31.70m-36.381m acres
Sources: USDA, Reuters
Traders at Ecom said that Thursday's Wasde report was "not
expected to have any significant changes".
"This time around we may see a small increase in US
production. However, this would be expected to be countered by an increase in
use due to the continued fast pace of US export sales."
For now, "the market has found support at 72.80 cents a pound
for the last two sessions keeping the recent upward trend intact".