Trade war complications near supposed finish line

The trade deal with China was just around the corner. It was close. It was going to happen in just a few weeks. These were some of the lines that kept being repeated throughout the spring that kicked the can further down the road. Markets had gen...

Erin Brown / Grand Vale Creative

The trade deal with China was just around the corner. It was close. It was going to happen in just a few weeks. These were some of the lines that kept being repeated throughout the spring that kicked the can further down the road. Markets had generally lost focus on the ongoing trade negotiations as spring weather and planting of crops stole attention. The thought was that negotiations would continue, but an end was coming somewhat soon, and little excitement would come as the two sides came together.

This idea was shattered as news of some last-minute backtracking on the part of China led President Trump to tweet that tariff rates on $200 billion of Chinese goods would increase from 10% to 25%. And this would happen this week. After the tweets, the agriculture markets were pressured as traders were reminded just how tenuous the trade relationship is. On Friday, May 10, at 12:01 a.m., tariffs were increased as promised. The administration's position is that higher tariffs generate more money from China for the U.S. government and it can use that money to buy farmers' crops to provide aid for struggling nations around the world. From an economic perspective, it is understood that U.S. companies and consumers are the ones that are actually paying with the tariffs (at least in the short term), though the lack of demand for Chinese goods as a result of higher prices could provide some pressure to force change to trade policy.

So far, China has not retaliated against the U.S. for its most recent tariff hike. But markets are (again) watching closely to see if any action will be taken to intensify the trade war with the U.S. and pressure commodity prices further.


Wheat markets have been mixed, with spring wheat futures up from the lows (only a little) while Chicago and Kansas City are making new contract lows. Either way, there has not been much support across the wheat board.


Spring wheat's upward move is due to the fact that planting in the U.S. is delayed. The weekly Crop Progress and Conditions Report from the Department of Agriculture showed just 22 percent done compared to 49% for the five year average pace. Drier conditions are expected in the coming weeks in the Northern Plains, which should allow for improved efforts in the field.

The U.S. Department of Agriculture also released its monthly supply and demand estimates. This report held the government's first estimates for the new crop year (2019/20). Domestically, stocks are expected to increase as smaller planted area than previously reported is overcome by huge yield (48.6 bushels per acre) and lower export demand. Globally, ending stocks are expected to climb from a year ago as production improves in most exporting countries (Ukraine, Russia, European Union, Argentina, Canada, and Australia all saw production estimates increase from the previous year). Overall, the report was bearish for wheat.


The durum market remains weak even with slow planting in the Northern Plains. There has not been enough of a reason to fear a crop loss for new crop to spark any significant price support. Even with lower planted area expectations, there will have to be a major growing season problem in the Plains to get prices going higher. Unfortunately, the USDA did not release any estimates for wheat by class in their supply and demand data. We will have to wait until June for those figures.


The canola market did find some modest support from the lows this week. The market has been under pressure from lack of demand from China on diplomatic disputes. However, President Donald Trump's tweet over the previous weekend sparked some hope that China would retaliate and increase soybean tariffs (which have yet to be increased) which would possibly send some demand back to canola. All of this is speculation at this point, so the canola price rally has been limited.


The barley balance sheet presented by the USDA showed stocks growing by 1 million bushels from the 2018/19 crop year. Planted area is up modestly (which was known) but the summer growing season has not yet begun to shed light on a realistic yield number. As a result, the USDA kept a safe, basically unchanged ending stock situation for U.S. barley. In the weekly report on crop progress, we see that planting is also delayed for barley. Just 37 percent of the crop has been planted compared to 56 percent for the five year average pace.



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