China hits back, targeting farmers with soybean tariff
China's response to U.S. tariffs was targeted and aimed at key agricultural products. Tariffs were placed on soybeans, some corn products and pork (among other agricultural items as well as automobiles and aircraft). This move was clearly meant to hit back at not just the U.S. as a whole but the farm economy that largely supported President Donald Trump during the 2016 election. Soybean exports from the U.S. to China totaled $12 billion in 2017, and the loss of any of that business would be harmful for domestic farmers — especially following three generally tight years from a farm income perspective when every bit of foreign demand has been necessary.
Agriculture markets got hammered on Wednesday when the tariffs were announced. Some recovery took place during Thursday's trade, but the tone of the market has been altered by these tariffs. As the week came to a close, Trump has threatened another $100 billion of additional tariffs on Chinese goods, directing trade officials to identify potential items to target. Additionally, the potential for some demand to change for corn and vegetable oils due to the Renewable Fuels Standard exemptions or changes (currently being discussed in Washington) also could hit farmers and reduce demand. Uncertainty surrounding political moves continue to drive markets, even as planting of spring crops gets underway.
Wheat markets were largely supported by the weather and poor U.S. winter wheat conditions. The markets did see some spillover pressure from corn and soybeans due to the China tariffs, but traders were focused more on the production-side fundamentals. In the U.S. Plains, weather remains too dry for the growing winter wheat crop. Forecasts do not provide much hope for relief either. Wheat is a very resilient crop, and a later-season rain could aid the crop significantly and bump yields, but the market is pricing in some premium as time ticks on the growing season. The U.S. Department of Agriculture released its first nationwide ratings for the crop, and it is not good. Just 32 percent of the crop is rated good to excellent compared to 51 percent a year ago. And 30 percent of the crop is rated poor to very poor compared to 14 percent a year ago. Early season ratings do not have the best correlation to final yield, but rains are needed badly in many areas.
The U.S. durum market stayed flat from a week ago. Prices have been steady and remain low with adequate supplies ahead of spring planting. Planting has not really gotten started in most areas, but look for progress reports in the coming weeks.
The canola market has been inching higher, finding support from improved crush margins and a weaker Canadian dollar. Fundamentally, demand has been good. The U.S. has a strong appetite for canola oil, bringing in 326 million pounds in February. Cumulative imports for the crop year to date are in line with last year's record.
But major support is not coming as the soybean oil market remains subdued. Additionally, canola acreage is expected to be up again in Canada this year. Official data will be released on April 27, but even with a drop in U.S. area, total canola plantings will rise.
Peas and lentils
Farmers in the U.S. do not plan to change their pulse plantings too much from a year ago. The bigger news revolves around India. There have been rumors of India considering a ban on pulse imports altogether. This would have a huge impact on farmers in the U.S. and Canada that help supply the huge demand from India.
Mustard seed markets have been mostly flat. Prices have not changed much as the new crop is coming. The USDA reported that farmers intend to decrease total area for mustard seed. However, planted area will likely dip for major grains and oilseeds, as well as pulses, resulting in a sentiment that farmers in the Dakotas and Minnesota may actually bump up their mustard plantings for 2018.