Scattered afternoon or evening thundershowers will mainly occur in the western Midwest and portions of the central and Southern Plains region during Monday, delaying planting progress for corn and soybeans and maintaining disease pressure on winter wheat. Drier weather through the northern plains, the Delta and the southeast U.S. Drier weather in the northern plains favors planting progress for wheat, corn and soybeans. Dry, warm to hot weather maintains stress on early development of crops in the Delta and especially in the southeast U.S.
Highs Monday: 60s to very low 90s Canadian Prairies, low 80s to very low 90s F Northern Plains, low to upper 80s central and Southern Plains, 60s to very low 80s Midwest with the coolest in the east, 80s to low 90s Delta, upper 80s to upper 90s southeast U.S., low to upper 90s Florida, upper 80s to upper 90s central and south Texas.
Welcome
Monday, June 3, 2019
Washington Insider: Trade Fights Ramp Up
A new trade policy shock began on Thursday night as the President tweeted a pair of tweets warning that he will impose tariffs on Mexico starting at 5% on June 10 and ramping up in increments to 25% in October “unless Mexico stops immigrants from entering the U.S. illegally,” Bloomberg — and others — are reporting this weekend.
The announcement led to widespread speculation about the potential impacts, including the possibility that Mexican retaliation “would tear through battleground states that President Donald Trump needs to win re-election, hurting the auto industry in Michigan and Ohio, dairy farmers in Wisconsin and grain and hog farmers in Iowa and North Carolina.”
Industry groups, including manufacturers and various agricultural organizations, issued dire warnings about the fallout from any such tariff policy. The powerful U.S. Chamber of Commerce is considering a legal challenge, Bloomberg said.
Jay Timmons, president and chief executive officer of the National Association of Manufacturers, called the threats “a Molotov cocktail of policy” that would have “devastating consequences on manufacturers in America.”
A top Mexican official said the country won’t retaliate before discussing the matter with the U.S. Still, the potential tariffs, “if turned into reality, would be extremely serious,” said Jesus Seade, the country’s undersecretary of foreign relations for North America.
Retaliation by Mexico is virtually certain to strike Trump’s political base in rural America, Bloomberg said. Farmers are already under strain from ongoing trade wars, low commodity prices and natural disasters, including floods across the Midwest.
Agricultural groups had been relieved just two weeks ago when the administration moved to end tariffs on steel and aluminum imports from Mexico and Canada. Now, they face the prospect Mexico will resume punitive duties on U.S. agricultural goods.
The groups say they fear that a new trade dispute will hinder ratification of the U.S.-Mexico-Canada Agreement, which they consider crucial to maintaining trade with the nation’s two largest agricultural export markets.
Dairy and pork producers will be in cross-hairs if the President resumes a trade fight with Mexico, which hit both industries with punitive tariffs in the most recent trade dispute. The country is also the largest export market for U.S. corn and wheat, and the second-largest for soybeans, behind China.
Agricultural and industrial regions played an important role in the President’s election. He won an Electoral College majority and the presidency based on a combined margin of fewer than 80,000 votes in three states: Wisconsin, Michigan and Pennsylvania.
The largest agricultural sector in each of those three states is dairy. Mexico is “our number one market,” Tom Vilsack, president and CEO of the U.S. Dairy Export Council and a former USDA Secretary of Agriculture, told Bloomberg.
Iowa, which voted for Trump in 2016 after supporting Democrat Barack Obama in 2008 and 2012, is the largest U.S. producer of hogs and of corn. North Carolina, another electoral battleground, is the nation’s second-largest hog producer.
David Herring, president of the National Pork Producers Council and a hog farmer from Lillington, North Carolina, said “American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement.”
Trade disputes with Mexico and China already have cost U.S. pork producers $2.5 billion over the past year, Herring said. The two rounds of financial aid the Trump administration has announced for farmers “provide only partial relief to the damage trade retaliation has exacted,” he said.
Trump’s latest tariff barrage, meanwhile, would immediately hit the vast, tightly integrated supply chains of U.S. automakers, a bedrock industry in Michigan and northern Ohio, which the President carried in 2016 but are vulnerable now, Bloomberg said.
The administration already took a hit in northern Ohio in March when GM halted production at its small car factory in Lordstown, located in a region where the president had promised industrial jobs would be coming back.
Mexico is the largest source of parts for U.S.-made autos, so tariffs would increase costs for virtually every major manufacturer. Higher prices at the dealership could cut into sales that are already expected to decline for the second time in three years.
Even before the tariff announcement, General Motors Co. and Ford Motor Co. had announced plans to cut thousands of salaried jobs.
Auto industry analysts brushed aside an assertion by Trump that companies will leave Mexico and “come back home to the USA” in response to tariffs.
“Until there’s some greater certainty about how long these tariffs would be in place, nobody is going to be moving billions of dollars and putting in duplicative capacity in the U.S.,” Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Michigan said.
No automaker has halted production at a Mexican factory since the President took office, she added. In fact, Ford recently said it would begin building commercial vans in Mexico, while Fiat Chrysler this year reneged on plans to move heavy duty truck production to Michigan from Mexico. GM is building its new Chevrolet Blazer in Mexico, even as it plans to close four vehicle and parts plants in the U.S.
So, there are still more moving parts to U.S. trade policy just now, especially as the U.S.-China fight shows signs of becoming even hotter. Producers should watch very closely as the still uncertain details of the new tariffs on Mexico are defined and implemented, Washington Insider believes.
Perdue Opens Door to Adjusting Farmer Aid for Unplanted Acres
In announcing the aid package for agriculture and farmer totaling $16 billion, USDA made clear that the plan would be based on 2019 planted acres. But USDA Secretary Sonny Perdue Thursday opened the possibility that the trade aid package could be adjusted to account for acres that do not get planted this year.
"If we see any opportunity to use the Market Facilitation Program (MFP) to enhance or to help that, we will consider that,” he stated. However, he also said no decision has been made yet on that front. “We want to encourage producers to plant for the market regardless of government programs,"
Perdue said at another stop Thursday. "Do not try to harvest a government program."
House Ag Committee Chairman Collin Peterson, D-Minn., noted his concern about the new MFP during a town hall meeting with farmers in southwest Minnesota Thursday morning. Peterson called USDA’s latest trade aid proposal misguided and said he told USDA if they just waited the problem would not exist relative to potentially impacting plantings.
"All you gotta do is wait three weeks, and planting will be over, and you won't have to go through all this," Peterson said he told USDA.
EPA Clears Year-Round E15 Sales But Tempers RIN Reforms
EPA has released the final rule to allow sales of E15 year-round via a waiver of the Reid Vapor Pressure (RVP) rules that have limited sales of the higher ethanol blend to eight months out of the year – not during the summer months.
EPA also announced it would undertake some reforms to the market for Renewable Identification Numbers (RINs), but would not do so to the degree it proposed originally.
EPA said it is now adopting a "new interpretation" of the Clean Air Act (CAA) relative the RVP waiver. "We find that E15 is “substantially similar” to Tier 3 E10 certification fuel for use in MY2001 and newer light-duty vehicles," EPA said. "In the second of these approaches, we maintain our interpretation of CAA sec. 211(f), making it clear that the conditions on the CAA sec. 211(f)(4) waivers granted to E15 in 2010 and 2011 do not restrict the application of the 1-psi waiver to downstream oxygenate blenders in most circumstances. "
The third change from EPA on this front would remove limitations in our regulations on the volatility of E15 promulgated in the E15 Misfueling Mitigation Rule (“MMR”).
Given the changes, EPA said, "parties will be able to make, distribute, and sell E15 made with the same conventional blendstock for oxygenate blending that is used to make E10 by oxygenate blenders during the summer."
Ag Groups Lament New Tariffs - Trump Hitting Mexico With 5% Tariff in Response to Migrants
OMAHA (DTN) -- Farm groups and political leaders on Friday raised concerns Mexico would react with new retaliatory tariffs on U.S. agricultural products, but Mexico's president declined to escalate yet another trade dispute with President Donald Trump.
Mexican grain trucks filled with U.S. corn move across the Progreso International Bridge in August 2017. Mexico is the largest market for U.S. corn and farmers are concerned about President Trump's new tariff plan.
Trump announced late Thursday that the U.S. would place a new 5% tariff on all products from Mexico because of illegal immigration. Mexican President Andres Manuel Lopez Obrador wrote President Donald Trump a two-page letter citing his country is doing what it can to reduce migrants from other Central American countries, but Lopez Obrador also pointed to the U.S. history as a nation of immigrants.
Lopez Obrador added, "...the motto 'United States first' is a fallacy" and "social issues are not resolved through taxes or coercive means."
White House officials had said the tariffs would not begin until June 10 and would ratchet up to 10% in early July. The president said the tariff would increase to as much as 25%. Mexico dispatched its foreign secretary to Washington to discuss the tariffs and immigration challenges.
On a press call, White House Acting Chief of Staff Mick Mulvaney said all Mexican export products would be subject to the tariffs.
While initially pushing on illegal immigration, Trump on Friday tweeted that to avoid the tariffs, "Mexico must take back their country from the drug lords and cartels. The tariff is about stopping drugs as well as illegals!"
The new tariffs come just two weeks after the U.S. dropped steel and aluminum tariffs on Mexico and Canada, prompting those countries to drop retaliatory tariffs as well. Those moves were expected to push all three countries to start ratification of the new U.S.-Mexico-Canada Agreement to replace the North American Free Trade Agreement.
Tom Sleight, president and CEO of the U.S. Grains Council, told DTN he was pleased with the measured response from Mexico so far. "That was nice to see and we hope the U.S. does the same thing and negotiates in good faith," Sleight said. "We don't need this tariff on corn, ethanol, sorghum, DDGs. You know, we've got it all going on with Mexico."
Sleight added that South American competitors Brazil and Argentina "are getting very close" in price to U.S. grains. "While we still have an advantage in that market, the gap is closing right now in the market today."
Trade groups representing corn growers, wheat growers and pork producers all called on President Trump to rethink the new tariffs for fear they could see retaliatory actions.
"The potential fallout from new tariffs is like struggling to survive a flood then getting hit by a tornado," said Chris Kolstad, chairman of the U.S. Wheat Associates and a wheat farmer from Ledger, Montana.
Kolstad said Mexican businesses spent 2018 broadening their supply sources in the fallout of tariffs over the past year. While Mexico imported more wheat, U.S. wheat exports declined. Kolstad noted "in a very disheartening coincidence" U.S. Wheat Associates is hosting a conference next week with Mexican customers, "to remind them of how important they are to us." The conference is being funded using trade promotion money given to U.S. Wheat Associates because of the negative impacts of retaliatory tariffs.
Lynn Chrisp, president of the National Corn Growers Association and a Nebraska farmer, pointed out Mexico is the top customer for U.S. corn.
"The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for USCMA but new tariffs threaten to reverse that progress," Chrisp said. "Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring."
David Herring, president of the National Pork Producers Council, called on President Trump to reconsider the tariffs. "American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement. Over the last year, trade disputes with Mexico and China have cost hard-working U.S. pork producers and their families approximately $2.5 billion," said Herring, a pork producer from Lillington, North Carolina.
U.S. pork exports to Mexico were already down 13% in volume and 29% in dollar value -- $261.9 million compared with $371.3 million in 2018 -- through the first three months of this year, according to the latest data from the U.S. Meat Export Federation. That decline in value was directly related to a 20% retaliatory tariff by Mexico that was just removed in mid-May. The retaliatory tariffs against U.S. pork "ended six consecutive years of record export volumes to Mexico, and early 2019 is showing no signs of relief."
Herring called on Trump to move ahead with ratifying the USMCA, which would maintain zero tariffs on U.S. pork exports. Herring also said the U.S. needs to complete a trade deal with Japan and resolve trade disputes with China "where U.S. pork has a historic opportunity to dramatically expand exports given the country's struggle with African swine fever."
Iowa officials from both parties offered some of the most critical responses to the president's latest tariff moves. Republican Gov. Kim Reynolds said the U.S. needs to secure the border and address immigration, "but it cannot be done on the backs of Iowa farmers. Iowans are frustrated with Washington's inability to reform our country's immigration system and address the crisis at the border, but I am asking the president to rethink this approach. Mexico is Iowa's top trading partner, and placing new tariffs could undo the progress made by the negotiated USMCA trade agreement," Reynolds said.
Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, was among the first political leaders Thursday night to criticize the president's plan. "This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump's and what could be a big victory for the country," Grassley stated.
The latest tariff announcement comes just as USDA lowered its forecast for agricultural exports for fiscal-year 2019 by $4.5 billion to $137 billion, though the outlook released Thursday left exports to Mexico unchanged at a projected $19.7 billion for the year.
In that same USDA trade forecast, USDA had projected a $400 million increase in agricultural imports from Mexico to $26.3 billion. The trade forecast was issued before the president announced the latest round of tariffs.
Mexican grain trucks filled with U.S. corn move across the Progreso International Bridge in August 2017. Mexico is the largest market for U.S. corn and farmers are concerned about President Trump's new tariff plan.
Trump announced late Thursday that the U.S. would place a new 5% tariff on all products from Mexico because of illegal immigration. Mexican President Andres Manuel Lopez Obrador wrote President Donald Trump a two-page letter citing his country is doing what it can to reduce migrants from other Central American countries, but Lopez Obrador also pointed to the U.S. history as a nation of immigrants.
Lopez Obrador added, "...the motto 'United States first' is a fallacy" and "social issues are not resolved through taxes or coercive means."
White House officials had said the tariffs would not begin until June 10 and would ratchet up to 10% in early July. The president said the tariff would increase to as much as 25%. Mexico dispatched its foreign secretary to Washington to discuss the tariffs and immigration challenges.
On a press call, White House Acting Chief of Staff Mick Mulvaney said all Mexican export products would be subject to the tariffs.
While initially pushing on illegal immigration, Trump on Friday tweeted that to avoid the tariffs, "Mexico must take back their country from the drug lords and cartels. The tariff is about stopping drugs as well as illegals!"
The new tariffs come just two weeks after the U.S. dropped steel and aluminum tariffs on Mexico and Canada, prompting those countries to drop retaliatory tariffs as well. Those moves were expected to push all three countries to start ratification of the new U.S.-Mexico-Canada Agreement to replace the North American Free Trade Agreement.
Tom Sleight, president and CEO of the U.S. Grains Council, told DTN he was pleased with the measured response from Mexico so far. "That was nice to see and we hope the U.S. does the same thing and negotiates in good faith," Sleight said. "We don't need this tariff on corn, ethanol, sorghum, DDGs. You know, we've got it all going on with Mexico."
Sleight added that South American competitors Brazil and Argentina "are getting very close" in price to U.S. grains. "While we still have an advantage in that market, the gap is closing right now in the market today."
Trade groups representing corn growers, wheat growers and pork producers all called on President Trump to rethink the new tariffs for fear they could see retaliatory actions.
"The potential fallout from new tariffs is like struggling to survive a flood then getting hit by a tornado," said Chris Kolstad, chairman of the U.S. Wheat Associates and a wheat farmer from Ledger, Montana.
Kolstad said Mexican businesses spent 2018 broadening their supply sources in the fallout of tariffs over the past year. While Mexico imported more wheat, U.S. wheat exports declined. Kolstad noted "in a very disheartening coincidence" U.S. Wheat Associates is hosting a conference next week with Mexican customers, "to remind them of how important they are to us." The conference is being funded using trade promotion money given to U.S. Wheat Associates because of the negative impacts of retaliatory tariffs.
Lynn Chrisp, president of the National Corn Growers Association and a Nebraska farmer, pointed out Mexico is the top customer for U.S. corn.
"The recent deal to lift steel and aluminum tariffs on Mexico and Canada was an important breakthrough for USCMA but new tariffs threaten to reverse that progress," Chrisp said. "Amid a perfect storm of challenges in farm country, we cannot afford the uncertainty this action would bring."
David Herring, president of the National Pork Producers Council, called on President Trump to reconsider the tariffs. "American pork producers cannot afford retaliatory tariffs from its largest export market, tariffs which Mexico will surely implement. Over the last year, trade disputes with Mexico and China have cost hard-working U.S. pork producers and their families approximately $2.5 billion," said Herring, a pork producer from Lillington, North Carolina.
U.S. pork exports to Mexico were already down 13% in volume and 29% in dollar value -- $261.9 million compared with $371.3 million in 2018 -- through the first three months of this year, according to the latest data from the U.S. Meat Export Federation. That decline in value was directly related to a 20% retaliatory tariff by Mexico that was just removed in mid-May. The retaliatory tariffs against U.S. pork "ended six consecutive years of record export volumes to Mexico, and early 2019 is showing no signs of relief."
Herring called on Trump to move ahead with ratifying the USMCA, which would maintain zero tariffs on U.S. pork exports. Herring also said the U.S. needs to complete a trade deal with Japan and resolve trade disputes with China "where U.S. pork has a historic opportunity to dramatically expand exports given the country's struggle with African swine fever."
Iowa officials from both parties offered some of the most critical responses to the president's latest tariff moves. Republican Gov. Kim Reynolds said the U.S. needs to secure the border and address immigration, "but it cannot be done on the backs of Iowa farmers. Iowans are frustrated with Washington's inability to reform our country's immigration system and address the crisis at the border, but I am asking the president to rethink this approach. Mexico is Iowa's top trading partner, and placing new tariffs could undo the progress made by the negotiated USMCA trade agreement," Reynolds said.
Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, was among the first political leaders Thursday night to criticize the president's plan. "This is a misuse of presidential tariff authority and counter to congressional intent. Following through on this threat would seriously jeopardize passage of USMCA, a central campaign pledge of President Trump's and what could be a big victory for the country," Grassley stated.
The latest tariff announcement comes just as USDA lowered its forecast for agricultural exports for fiscal-year 2019 by $4.5 billion to $137 billion, though the outlook released Thursday left exports to Mexico unchanged at a projected $19.7 billion for the year.
In that same USDA trade forecast, USDA had projected a $400 million increase in agricultural imports from Mexico to $26.3 billion. The trade forecast was issued before the president announced the latest round of tariffs.
Morning CME Globex Update
After the Dow Jones average plummeting 355 points on Friday on U.S.-Mexico trade fears, Dow futures are again down 35 points early Monday. July crude oil is up $1.09 per barrel, the U.S. dollar index is up 0.0110, and June gold is up $10.60 per ounce.
Other Markets:
Dow Jones: Lower
U.S. Dollar Index: Higher
Gold: Higher
Crude Oil: Higher
Corn:
Corn is again a bit lower to start Monday following Friday's 9-cent lower close on July corn. President Trump's threat to hit all Mexico imports to the U.S. with a 5% tariff beginning on June 10, gradually increasing to 25%, sent the markets reeling on Friday. The Trump administration's willingness to tie trade to the escalating border crisis has given ag markets another possible trade war to worry about. Mexico has been the number one importer of U.S. corn, taking 600 million bushels (mb) last year. The threat of retaliatory tariffs on the U.S. in response stopped the recent corn rally in its tracks, as did the drier than expected weekend in some areas of the Corn Belt. Mexico, in an effort to avoid any sort of trade war ahead of what was expected to be the ratification of the USMCA trade accord, has sent key representatives to Washington for talks with U.S. officials Monday. Both Mexico and China officials had expressed a willingness to continue to work with the U.S. on trade issues over the weekend. Not all is rosy on the planting front with the soggy Eastern Corn Belt. Illinois, Indiana and Ohio are expected to receive another dose of 1" to 2 1/2" of rain this week, and flooding continues to be a concern in the south, especially Missouri and Arkansas. Expectations are for U.S. corn planting progress to be anywhere from 68% to 75% complete as of Sunday compared to the average of 97%. The discussion on prevented planting continues to rage on, with estimates of 6 to 12 million acres thrown out there. Managed money funds have covered all of their once record large net-short of 344,000 contracts, which as of last Tuesday was 22,000 short, but is thought to be a small long of 25,000 contracts to begin Monday. The recent corn rally has destroyed demand for U.S. corn even more. DTN's National Corn Index closed at $4.00 on Friday, with an average basis of 27 cents under July.
Soybeans:
After trading quite a bit higher early Sunday night following Friday's weak response to the threat of tariffs on Mexican imports, soybeans are a couple of cents higher early Monday. Positive statements from China over the weekend regarding continuing trade talks with the U.S., and Mexico's swift response to the threat of tariffs on June 10 has stopped weakness which saw July and November soybeans stall out near the previous highs before plunging on Friday. Unlike in corn, where funds had exited all of their net-short, in soybeans, they remained a significant 122,000 contracts short as of last Tuesday. Although soybeans are also well behind the average seeding pace, soybeans still have a bearish supply situation both in the world and in the U.S., and ideas that soybean acres could still increase up to 1.5 million acres from the March intentions. Expectations are for soy seeding to be 41-43% completed as of Sunday, which would still be well behind average, but in many areas aside from the Eastern Belt, progress should be made in the coming weeks, as both the latest 6-10 day and 8-14 day weather forecasts look to be warmer and drier. There is a general understanding that some 50 to 75 million bushels (mb) of export demand could be slashed from soybeans in the June USDA report insuring a burdensome and record 1-billion bushel (bb) carryout. Bearish is the fact that African swine fever continues to rear its ugly head, with Hong Kong having reported its second case, and swine fever expanding in Vietnam. Trade fears are that ASF could soon show up in South Korea, further dampening demand for U.S. ag products. Look for strong resistance still from $9.00 to $9.15 on July, and $9.20-$9.30 on November to slow down rallies. DTN's National Soybean Index closed at $7.96, and reflects an average basis of 82 cents under July.
Wheat:
All three wheat markets are sharply higher to begin early Monday morning, with Chicago July right at the recent high. The still very wet outlook for Southern Plains hard red winter (HRW) areas, and flooding issues continuing to worsen in Missouri, Illinois, Indiana and Arkansas soft red (SRW) growing regions has funds continuing to cover their once very large short. Managed funds, as of last Tuesday, were just 23,000 short in Chicago and still 40,000 short in Kansas City wheat, but it is likely that funds had covered more of that short on Wednesday and Thursday last week. This week promises another 1" to 2 1/2" of rain in both Oklahoma and Kansas HRW areas, further exacerbating concerns for a loss in both quantity and quality of HRW wheat. Other wheat weather concerns are also creeping into the market, with dryness in parts of North Dakota spring wheat area and Canada, and dryness in the Volga valley in Russia and Ukraine threatening those crops. However, the burdensome U.S. and world wheat stocks, along with the pending U.S. harvest, should certainly cap any upside gains in the near term. Major overhead resistance on Chicago July will be from $5.10-$5.20 on an extended rally. DTN's National HRW index closed at $4.55, and the average basis is at 18 cents under July.
Other Markets:
Dow Jones: Lower
U.S. Dollar Index: Higher
Gold: Higher
Crude Oil: Higher
Corn:
Corn is again a bit lower to start Monday following Friday's 9-cent lower close on July corn. President Trump's threat to hit all Mexico imports to the U.S. with a 5% tariff beginning on June 10, gradually increasing to 25%, sent the markets reeling on Friday. The Trump administration's willingness to tie trade to the escalating border crisis has given ag markets another possible trade war to worry about. Mexico has been the number one importer of U.S. corn, taking 600 million bushels (mb) last year. The threat of retaliatory tariffs on the U.S. in response stopped the recent corn rally in its tracks, as did the drier than expected weekend in some areas of the Corn Belt. Mexico, in an effort to avoid any sort of trade war ahead of what was expected to be the ratification of the USMCA trade accord, has sent key representatives to Washington for talks with U.S. officials Monday. Both Mexico and China officials had expressed a willingness to continue to work with the U.S. on trade issues over the weekend. Not all is rosy on the planting front with the soggy Eastern Corn Belt. Illinois, Indiana and Ohio are expected to receive another dose of 1" to 2 1/2" of rain this week, and flooding continues to be a concern in the south, especially Missouri and Arkansas. Expectations are for U.S. corn planting progress to be anywhere from 68% to 75% complete as of Sunday compared to the average of 97%. The discussion on prevented planting continues to rage on, with estimates of 6 to 12 million acres thrown out there. Managed money funds have covered all of their once record large net-short of 344,000 contracts, which as of last Tuesday was 22,000 short, but is thought to be a small long of 25,000 contracts to begin Monday. The recent corn rally has destroyed demand for U.S. corn even more. DTN's National Corn Index closed at $4.00 on Friday, with an average basis of 27 cents under July.
Soybeans:
After trading quite a bit higher early Sunday night following Friday's weak response to the threat of tariffs on Mexican imports, soybeans are a couple of cents higher early Monday. Positive statements from China over the weekend regarding continuing trade talks with the U.S., and Mexico's swift response to the threat of tariffs on June 10 has stopped weakness which saw July and November soybeans stall out near the previous highs before plunging on Friday. Unlike in corn, where funds had exited all of their net-short, in soybeans, they remained a significant 122,000 contracts short as of last Tuesday. Although soybeans are also well behind the average seeding pace, soybeans still have a bearish supply situation both in the world and in the U.S., and ideas that soybean acres could still increase up to 1.5 million acres from the March intentions. Expectations are for soy seeding to be 41-43% completed as of Sunday, which would still be well behind average, but in many areas aside from the Eastern Belt, progress should be made in the coming weeks, as both the latest 6-10 day and 8-14 day weather forecasts look to be warmer and drier. There is a general understanding that some 50 to 75 million bushels (mb) of export demand could be slashed from soybeans in the June USDA report insuring a burdensome and record 1-billion bushel (bb) carryout. Bearish is the fact that African swine fever continues to rear its ugly head, with Hong Kong having reported its second case, and swine fever expanding in Vietnam. Trade fears are that ASF could soon show up in South Korea, further dampening demand for U.S. ag products. Look for strong resistance still from $9.00 to $9.15 on July, and $9.20-$9.30 on November to slow down rallies. DTN's National Soybean Index closed at $7.96, and reflects an average basis of 82 cents under July.
Wheat:
All three wheat markets are sharply higher to begin early Monday morning, with Chicago July right at the recent high. The still very wet outlook for Southern Plains hard red winter (HRW) areas, and flooding issues continuing to worsen in Missouri, Illinois, Indiana and Arkansas soft red (SRW) growing regions has funds continuing to cover their once very large short. Managed funds, as of last Tuesday, were just 23,000 short in Chicago and still 40,000 short in Kansas City wheat, but it is likely that funds had covered more of that short on Wednesday and Thursday last week. This week promises another 1" to 2 1/2" of rain in both Oklahoma and Kansas HRW areas, further exacerbating concerns for a loss in both quantity and quality of HRW wheat. Other wheat weather concerns are also creeping into the market, with dryness in parts of North Dakota spring wheat area and Canada, and dryness in the Volga valley in Russia and Ukraine threatening those crops. However, the burdensome U.S. and world wheat stocks, along with the pending U.S. harvest, should certainly cap any upside gains in the near term. Major overhead resistance on Chicago July will be from $5.10-$5.20 on an extended rally. DTN's National HRW index closed at $4.55, and the average basis is at 18 cents under July.
Early Word Opening Livestock - Mixed Trade Expected Monday
GENERAL COMMENTS:
Strong underlying pressure at the end of last week has caused underlying concern of follow-through pressure in early June. Last week, nearby live cattle futures broke through support levels, setting contract lows. This is expected to bring follow-through liquidation as August futures continue to look for support, although underlying softness in beef values the last couple of weeks is combining fundamental pressure with technical softness in the entire complex. Feeder cattle trade is leading the entire market lower after August futures took advantage of expanded trading limits Friday, holding a $5.10 per cwt loss at the closing bell. This accounts for a $9.50 per cwt loss in the last three sessions, significantly weakening the entire market tone. Concerns of recent gains in grain prices due to wet weather and delayed planting will cause concerns about feed supply availability for the next year. Even though the tone of the market remains weak, there will be an attempt to cover short positions on the first trading day of June, leaving the potential for buyer support to develop early Monday. Cash cattle trade is expected to remain undeveloped, with showlist distribution likely to be the main focus as bids and asking prices are not expected until later in the week.
Strong underlying pressure continued to develop in the lean hog futures late last week. This is expected to leave the markets generally weak, with mixed price levels possible in Monday morning trade. A combination of follow-through selling activity and short-covering is expected after the first of the month with traders balancing between an oversold market status, and still bearish news concerning global trade. The focus on outside market direction early Monday morning will also continue to be a significant market factor in the lean hog trade with traders closely monitoring the direction of grain trade as well as stock market activity. Cash trade is called steady to $2 lower Monday morning with most bids $1 lower. Expected slaughter Monday is at 465,000 head.
| BULL SIDE | BEAR SIDE | ||
| 1) |
Live cattle futures remain oversold following the sharp market losses late last week. The potential for early-month price adjustments is opening the door for firm buyer support to develop the next couple of days.
| 1) |
Feeder cattle futures tumbled sharply lower Friday. August futures once again set new contract lows, posting a $5.10 per cwt loss and closing at $133.12 per cwt. This broke below short-term lows set in May on the continuous chart, and may bring additional long-term pressure to the complex.
|
| 2) | Mexico appears willing to open trade talks concerning immigration following last week's announcement by President Trump to impose tariffs on all imports from Mexico. Resolution of this issue would support beef exports to Mexico. | 2) | Beef values continue to erode through late May, adding to the concern that additional follow-through pressure may develop in the entire complex. Even though demand remains firm, the lower price levels may weaken the entire complex. |
| 3) | Firm pork cutout support developed through the end of last week, which helped to stabilize summer pork products such as ribs and belly cuts, and may help to bring some additional stability to the complex during early June. | 3) |
Sharp end-of-the-month losses developed in lean hog complex. This added concerns that additional weakness will develop during early June and further erode market premiums.
|
| 4) |
Strong weekly sales to China were reported in last week's delayed Export Sales report with over 31,000 sales reported during the previous week. This indicates that even with increased tariff levels and trade war issues, China is needing to add to pork supplies.
| 4) |
The trade war with China continues to be a major concern in the entire hog complex along with underlying weakness in the domestic price levels, strong pork supplies and limited domestic demand changes for the rest of the summer.
|
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