Alex Norton, Beeson Inc.
If markets could have a weekly theme, last week's would be "Deals." The week of Oct. 7 ended with an announcement of the first phase of a trade deal between the U.S. and China. The trade war has been intensifying for over a year, and the news was initially met with a rally in both the stock market and agricultural commodity market. Claims that China would be buying somewhere between $40 billion and $50 billion of U.S. agricultural products was quite bullish.
The Sept. 1 stocks data from the U.S. Department of Agriculture was surprisingly bullish for soybeans and corn. So Thursday's World Agriculture Supply & Demand Estimates Report had to adjust those balance sheets to reflect old crop supplies that were known since the end of last month. Despite that data, the market saw a less supportive corn balance sheet and soybeans were about as expected. For wheat, domestic stocks remain comfortable and the October WASDE held few surprises. In the end, corn prices led agricultural commodity markets lower following the WASDE Report's release.
Over the last couple of years, and the last couple of weeks especially, agriculture markets have been impacted more by outside, unusual, or macroeconomic factors than previously. Or at least the markets have been influenced by these factors more frequently than many have been used to. This column has gone over those drivers many times: trade war with China, biofuels mandate uncertainty, hundreds of tweets, attacks in the Middle East, etc.
Usually during this time of the season, attention is on harvest and late-season weather. The markets are trying to wrap their collective "mind" around supply levels for crops. But this year brought a variety of broader, macroeconomic drivers that have to be considered. The first was the attack on Saudi Arabia's oil refineries. About 5% of the world's crude oil production was taken offline as a result of the attack, sparking a major rally in the crude oil market.
On Thursday, the U.S. Department of Agriculture released its supply and demand forecasts in its monthly report. The World Agriculture Supply and Demand Report was being watched closely for data on corn and soybean production in the U.S.
On Monday, the U.S. Department of Agriculture will release its monthly World Agriculture Supply and Demand Estimates Report. This particular report will hold a lot of vital information for the market. Not only will yields for major crops be adjusted (typically August is when spring crop yields begin to really take shape on the government-released balance sheets), but planted area for spring crops will be adjusted as well.
Trade negotiations between the world's two biggest economies had been stalled since May. Ahead of last week's trade meetings with China, President Trump made threats against the Chinese avoiding a trade deal during his first term, saying the negotiations would get tougher in his second term if they were hoping to deal with a different U.S. president.
Here are just a few of the things that are going on with commodity markets. U.S. planted acreage for spring crops is still not known due to an extremely wet spring. China's trade relationships with the U.S. and Canada are being hampered by geopolitical tensions. Aid payments to U.S. farmers have been uncertain until details were released this week by the Department of Agriculture. Yet the key market driver is the weather (which is always the case in July).
The narrative all spring and into the early part of the growing season had been about the U.S. Too much rain for too long was the story, leading to late planting, re-planting, and abandonment. The U.S. Department of Agriculture still is unable to deliver planting data as the June survey of farmers did not have actual planting reflected in all areas.
The monthly U.S. Department of Agriculture report on domestic and global supply and demand estimates held plenty of surprises for the market. The World Agricultural Supply and Demand Estimates Report showed global stocks of wheat coming down significantly from the previous report, as weather issues in top producing countries have trimmed yield expectations. Russia, Canada and others all had stocks trimmed, leading to higher expected exports for the U.S.