This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The roller coaster continues in the grain markets. We have a weather market in South America on top of more geopolitical risk than we have had in several years. Market participants are combing through all the headlines and tweets to try to glean what is going to happen on several fronts. The big ones are trade wars and biofuels policy. Both of those are crucial to determining agricultural prices.
The tariffs on Canada and Mexico have been delayed by 30 days. The new tariffs on China have gone into effect but their response was very mild. They put tariffs on energy and things that will not have much of an effect. It is very clearly a response just to save face, not retaliate. Trump had a call scheduled with Chinese President Xi today. There are rumors, or hope, in the market that China will start making ag purchases to start to fulfill the commitments they made under the phase 1 agreement in Trump’s first term as a gesture of good faith. We have not seen any evidence yet of this so it may just be hope but if it does happen, the market will be quick to react.
In addition to trying to gauge the trade war, the market is also closely watching South American weather. Argentina has picked up some showers over the last week but they were scattered, not the widespread soaking rains needed to bust the drought. Brazil is behind historic harvest pace in some regions but far enough ahead in others to offset. So overall they do not look behind yet. The forecast continues to lean wet in central Brazil which could slow harvest further. Market will also be watching closely to see if the safrana corn can be planted on time. The later it is planted the less chance it can finish before the dry season. We continue to get supportive fundamental news on the domestic front too. Ethanol production set a new record high last week. It tempers the excitement a little that ethanol stocks were also up sharply and nearing an all time high. Exports were at the very top end of lofty expectations for corn this week as well. Soymeal exceeded expectations and wheat was at the top end. Soybeans and oil were at the low end.
Mexico announced Thursday they were officially repealing the ban on GMO corn due to a successful challenge based on the trade agreement reached in the first Trump administration (USMCA). I believe this issue is far from settled as it could be brought back up if there is another tariff threat but the market reacted positively to the news on Thursday.
We get USDA’s February Supply and Demand update next Tuesday Feb 11th at noon. We do not look for any major changes on this report. Some are expecting to see USDA trim corn carryout again raising exports and ethanol but they may take a more measured approach due to the uncertainty in the regulatory environment with the new administration.