Markets show the power of a Trump tweet
Look at the facts surrounding trade with China heading into Thursday.
Mounting tariffs have been put in place on both sides, including Chinese tariffs on U.S. soybeans. Cases have been filed with the World Trade Organization against China for unfair trade practices.
The U.S. has historically high expected carry-out of soybean supplies due to a record crop and an expected lack of export business with China.
The U.S. Department of Agriculture head Sonny Perdue announces that no additional aid will be given to farmers as a result of the trade war's financial impact on agriculture.
Larry Kudlow said that things are still far apart with China.
The very few ships loaded with soybeans from the U.S. to China have been diverted to other markets or are not being unloaded.
All of these things had been bearish for soybean prices over the last month.
Then a Thursday tweet from President Donald Trump changed the outlook. The tweet reads: "Just had a long and very good conversation with President Xi Jinping of China. We talked about many subjects with a heavy emphasis on Trade. Those discussions are moving along nicely with meetings being scheduled at the G-20 in Argentina."
All of the previous bearish news is thrown out. Soybean prices added as much as 40 cents a bushel in two days of trading. Meal and oil were also supported, and this had a spillover effect on other grains and agriculture markets.
The path forward is not clear. Even Friday's trading started off strong before losing steam midday, so it is yet to be determined if the rally will continue.
One thought is that the two sides are further away than the tweet suggested, and Trump's comment was more political to rally the rural vote ahead of midterm elections on Tuesday.
The other thought is that there is real progress being made on the trade negotiations, and a shift in market dynamics have just begun (with more support ahead). But regardless of one's politics or thoughts on the tweet, the impact on prices cannot be denied. And those in the market have to be prepared to act quickly when opportunities arise.
Wheat markets have been moving mostly sideways with little new information to support or pressure prices in any significant way. Support came on Thursday with Trump's aforementioned tweet, but technical resistance held the market in check.
Winter wheat planting progress has been tracking just behind the five-year average pace, with the U.S. Department of Agriculture reporting 63 percent completion earlier in the week. The excess rains in most of the Central Plains have negatively impacted crop conditions, with just 53 percent of the crop rated good/excellent for the first week of reported national conditions. Fall conditions of the winter wheat crop are not indicative of final yield, but it is the information that the market has to trade on and it is therefore important to follow.
Globally, Russian export prices are down as competition grows with other suppliers. The EU is seeing good weather for the newly planted winter grain crops. And even Australia is finally getting some rain relief, though not enough to break the drought in the eastern portion of the country.
Minneapolis durum prices continue to trade at low levels, unchanged from a week ago. Little news available this week to report.
One market that was not supported by Trump's Thursday tweet was canola. Prices were down to their lowest mark since August 2017 before recovering some of the loss Friday. Part of the decline has been coming even before the tweet, as harvest is wrapping up in Canada. But the biggest driver is expected export demand. Even the thought of a return of soybean business to the U.S. from China means that alternative oils and oilseeds will be losing some expected market-share for 2018/19. With no official deal being reached and expected talks not expected until the G-20 at the end of the month, it is not yet clear if pressure will continue for canola. But continue to follow trade war developments for future direction.
Peas and lentils
Pulses have been softer with global demand weaker. Supplies of pulses are comfortable abroad, leading to lower offers for exports. Harvest is basically done, and weather worries for the fall are fading from view.
Mustard seed markets have been steady as Canadian harvest is concluding. Dry conditions have allowed farmers to get most of the remaining crops harvested. More than 96 percent of the crop is in the bin, slightly ahead of the five-year average pace. A potentially bearish factor for forward mustard seed pricing is India's production. Due to government intervention to support their farmers, India could increase planted area a half-million hectares from a year ago. This would limit export opportunities in 2019 for Canada and could potentially swell supplies if another market is not found.