Grain markets watch and wait for actual Chinese buying

Grain markets appear to be saying “show me the money” before getting too excited about renewed trade talks between the United States and China.

As the phrase goes, traders “bought the rumour” leading up to the G20 meeting in Argentina that saw the presidents of the world’s two leading economies sit down over supper to talk about the trade relationship. Oilseed futures prices edged higher on the hope that the parties would at least agree to resume serious negotiations.

Following that meeting, U.S. President Donald Trump said he would postpone a threatened increase on tariffs on Chinese imports for at least three months and the Chinese agreed to negotiations and said they would start buying American products, including soybeans.

But there were neither specific commitments nor sales deals signed so the market held off on significant celebration.

And when Canada, acting on a request from the U.S., arrested Meng Wanzhou, chief financial officer of Chinese high tech firm Huawei, worries increased that trade talk progress would be derailed.

Washington apparently wants her extradited to the U.S. on allegations that the firm violated American export sanctions on Iran. Huawei, a world leading telecommunications company, is heavily involved in the global move to the next level of wireless communication, the 5G network, that promises to greatly speed the introduction of what tech gurus call “the internet of things,” where everything from home security to refrigerators to grain carts to autos will be networked and monitored with the data collected. This will make possible conveniences such your fridge keeping track of your grocery supply and ordering food when needed and efficiencies such as reduced traffic congestion.

But with access to this dizzying amount of data, it also raises security concerns and this is where many countries are worried about Huawei and its ties to China’s government.

Beijing is angry about the arrest but as I write this it appears the Chinese do not want to escalate things to the point of having the trade talks collapse before they begin.

So the grain markets watch and wait for new soybean sales to hit the books, even as the stock market took a more negative view, with the Dow Jones down about three percent in the week to Dec. 7.

Other recent grain market developments included the following:

  • Statistics Canada’s final production report of the year showed the wheat crop larger than the agency’s last forecast in September and the canola crop a little smaller than the previous report. The wheat number weighed down the Minneapolis future market temporarily, but then the weekly U.S. export report showed stronger than expected movement and the price recovered. Canadian wheat exports continue to boom, with a massive 500,300 tonnes exported in Week 18 alone, the most in a single week this year and well above the 350,000 tonnes per week level needed to reach the Agriculture Canada target of 18 million tonnes for the year.
  • Statistics Canada pegged the canola crop at 20.243 million tonnes, down almost a million tonnes, or 4.6 percent, from last year and at the lower-end of the range of pre-report trade estimates. This provided modest support for canola futures as did the weakening Canadian dollar. The loonie had retreated to near US75 cents as oil prices have fallen. The Bank of Canada’s decision at its December meeting to leave interest rates unchanged also weighed on the loonie. The bank indicated that the problems in Alberta’s economy associated with lack of pipeline space and other measures of Canada’s economy show that the rate increases that were expected in the new year are now less of a sure thing.

But then on Dec. 7 the monthly Canadian employment report showed a record number of jobs created in November and the unemployment rate dropped to a record low 5.6 percent. The same day, the Organization of Petroleum Exporting Countries and Russia agreed to limit crude production by 1.2 million barrels per day, causing international oils prices to rise.

That lifted the cloud that had hung over the loonie, but decisions about future interest rate hikes here and in the U.S. will depend, as always, on the central banks’ monitoring of a host of economic indicators.

  • While North American farmers keep tabs on politics, the economy and the pace of exports, South American farmers are into their growing season. In Brazil, almost all soybeans are in the ground and enjoying mostly excellent weather. Local private estimates of production are starting to creep higher. The U. S. Department of Agriculture’s Brazil soybean forecast for this year is 120.5 million tonnes, up from 119.8 million last year, but local forecaster Safras Mercado’s latest outlook is for 122.2 million tonnes and consultancy Céleres has an even higher range at 123 million to 130 million tonnes.

Argentina’s farmers are still planting their crops and there has been mostly good weather.

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