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Morning markets: Grain futures dig in, helped by fresh US-China trade talks

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Grain futures dug in as the news flow provided a bit of fodder for the bulls, through factors including a Russia wheat crop downgrade and the renewal of US-China trade talks.

 

The US revealed that it would before the end of the month send a delegation to China for fresh talks on ending the trade dispute between the world’s two largest economies – with potentially significant results for ag markets.

 

Karl Setzer at AgriVisor said that “after the close” of grain markets on Tuesday “it was announced that Trade Representative Lighthizer and a group of US officials will be heading to Shanghai next Monday to meet with a Chinese delegation on trade issues”.

 

An accord would, of course, have particular implications for the soybean market, with China usually the top buyer of US exports of the oilseed, but with purchases of late largely confined to those timed to help trade talks.

 

“While no official word has been released, it would not be surprising to see a ‘good will’ purchase of some sort come from this visit,” Mr Setzer said.

 

‘Rumours continue to surface’

The talks follow market rumours around since late last week that China was anyway preparing some concessions over the retaliatory tax it has placed on imports of US soybeans.

 

“Rumours continue to surface surrounding Chinese business,” Mr Setzer said.

 

“The latest one is that some Chinese firms have been granted 30-day waivers on tariffs to purchase up to 6m tonnes of US soybeans.

 

“If true, this would be a great benefit for Chinese crushers as it would give them positive margins rather than the pressure they are currently seeing.”

 

US soymeal imports?

Not, it has to be said, that all market talk surrounding the soy market is positive for Chicago futures.

 

Another, for instance, is that US livestock/poultry producers are turning to South America for supplies of soymeal, given the relative competitiveness of these supplies compared with domestic ones.

 

Terry Reilly at Futures International flagged “talk of Argentina soybean meal headed to the US for south eastern feed end-users”.

 

Still, Chicago soymeal futures for December managed a 0.3% again to $313.40 a short ton as of 09:30 UK time (03:30 Chicago time), recovering some of the losses chalked up earlier this week.

 

Soybean futures themselves for November added 0.3% to $9.06 ¼ a bushel, again, managing to stay just ahead of their 50-day moving average, and indeed returning just above their 200-day moving average.

 

Acreage debate

Corn futures failed to hang on to early headway, standing unchanged at $4.31 ½ a bushel for December delivery.

 

Debate continues around the extent of sowings which US farmers were unable to make because of the wet spring, and which will be claimed under prevent plant insurance, and of which some further guidance is expected in the August 12 US Department of Agriculture Wasde briefing.

 

“Outside of crop ratings, which may not have much validity, the next potentially supportive piece is acreage on August 12,” said Benson Quinn Commodities.

 

“From current levels, it feels like the market is going to need a pretty favourable acreage number to garner a test of recent highs.”

 

Meanwhile, demand worries remain, with ideas of users being deterred by elevated prices.

 

US 2018-29 corn “supplies will likely go higher at the expense of exports,” Benson Quinn Commodities said, also telling investors to “expect ethanol run times to see a seasonal decline”.

 

‘Prime times for substitution’

One idea back in discussion is the potential for some loss of feed demand to wheat – particularly (Kansas City) hard red winter wheat, whose premium to corn is unusually low.

 

At Commonwealth Bank of Australia, Tobin Gorey, pondering “just how much corn will be displaced from US feed rations by hard red winter wheat,” noted that the “September futures spread – Kansas City wheat versus Chicago corn – is just $0.06 a bushel.

 

“That spread is only a little above all-time lows for this contract pair. And those all-time lows were set the best part of a half century ago.”

 

He also said that “August and September are perhaps the prime times for this substitution to occur.

 

“Winter wheat harvests have just finished, while the corn harvest is still to come.”

 

Price gains

As a support to wheat prices, SovEcon cut its forecast for the Russian wheat harvest by 2.9m tonnes, to below estimates from other commentators, as Agrimoney revealed.

 

Still, Kansas City hard red winter wheat did not allow its competitiveness to corn to erode too much, gaining, but by a modest 0.1% to $4.32 a bushel for September delivery.

 

Chicago soft red winter wheat also gained 0.2% to $4.88 a bushel for September, managing to stay just ahead of its 100-day moving average.

 

It was helpful for bulls that Minneapolis spring wheat for September gained 0.2% to $5.21 ¾ a bushel, despite some positive talk from the Wheat Quality Council tour of North Dakota spring wheat.

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