China Trade Talks Could Decide the Next Big Move in Grain Markets

The bullish USDA report reaction turned into an active day of positioning in anticipation of the US/China trade meeting which starts tonight. The atmosphere since President Trump’s arrival has been more cordial than any US visit in memory, so optimism is high that trade breakthroughs and potentially Chinese pressure on Iran to re-open the Straits will be the most important accomplishments. The rest of the week will be almost completely driven by developments in China as all negotiations with Iran have been halted until President Trump meets with Chairman Xi.

News and Notes:

- For the time being, there is no weather concern in the US or Brazil. The US planting pace will continue ahead of the 5YA for both corn and beans and should reach 70% +/- for corn and 60% +/- by Monday’s report. Early emergence and germination are not reported to be having a widespread problem.

- The daily December corn chart is on Page 2 and shows the impressive four-day rally to push prices to new 30-month highs for this contract. Several of you have sent me screenshots of fall delivery bids, with several areas showing better basis than expected for harvest delivery. The chart looks great, but overbought and with the funds long 1.8 BBU, any continued technically based rally will probably be a choppy and slower grind. The biggest wildcards in upcoming price are a re-opening of eh Straits (bearish) and a surprise purchase commitment from China (bullish). Be prepared for both.

- Treasury Sec Bessent has already met with his Chinese counterparts, and ag trade was on the agenda. More bean sales have been a long-rumored outcome of this meeting, but China has effectively stopped buying US corn over the last 4-years. Any corn sales would force the demand bulls and USDA trade estimates, to re-focus on what would happen if we only sold 500 MBU of corn to China.

- One overlooked piece of news today was that a congressional committee has resumed talks on passing year-round E-15 sales. With skyrocketing gas prices, the pressure to find ways to lower prices at the pump may figure into some of the legislative thinking. A passage and codifying of year-round E-15 would start the process of significant capital investment in the expansion of crush plants and blending facilities which have been operating at near maximum capacity post-Covid.

Tonight, will be a potentially explosive night of news as the meeting between President Trump and President Xi is scheduled to start at 8:15 pm central time and considering that (reportedly) more than 200 US trade team and US business leaders are attending the meeting and either meeting with their trade counterparts or other Chinese industry leaders to work on relationships and deals. The outcome of these meetings could be far more impactful than any USDA report, because any Chinese involvement and success in re-opening the Stratis will have any immediate bearish impact on energy prices and the general raw material markets, but at the same time a new multi-faceted trade deal for US products into China could offset some of that initial bearishness. Expect a massively volatile trade as every rumor and report will move the world energy and equity markets, but if the announcements are held until the completion of the meeting, it is possible that the major accomplishments or setbacks may not be announced officially until the weekend. These next 2-days could set up a much more settled trade outlook and relationship with China which would be the most positive news the market has seen in years. Make sure you put in your sales orders with your buyers because the upcoming overnight volatility will be extreme.