The U.S. has launched a challenge to China's use of tariff-rate quotas for rice, wheat and corn at the WTO, charging that China's administration of the program breached its WTO commitments and hurt U.S. farm exports.
The tariff-rate quotas for rice, wheat and corn were worth $7B-plus in 2015, and China would have imported up to an additional $3.5B of the crops last year if the quotas had been fully used, the Office of the U.S. Trade Representative said.
It was the second challenge to China's agricultural policies by the U.S. Trade Representative since September and the latest in an escalating number of trade disputes between the two countries.
Markets "are still trying to find a home," for the world surplus, Dave Marshall of Fist Choice Commodities tells Bloomberg. Down 1.4% to $3.97 per bushel, wheat is on track for its sixth straight decline, with the USDA forecasting record world inventories for 2016-17, and U.S. stockpiles at their highest in 29 years.
March corn is also down another 1.4% to $3.4375 per bushel.
The $891M PowerShares DB Agriculture Fund (NYSEARCA:DBA) has received $162M of net inflows this year in what could end up being the fund's first full year of net inflows since 2009, according to Invesco.
Helping to spark the interest are tentative rallies in grain prices (though these have stumbled badly in the past few days). Among the investors this year is the Harvard endowment.
"One thing that we’ve done correctly over the past five years or so is to be absent from the commodities market," says one wealth manager whose firm has now built a sizable position in DBA to protect against what it thinks might be a rise in inflation.
U.S. farmers plan to sow 93.6M acres of corn this year, up 6.4% from a year ago, the most since 2013, and against expectations for just 89.97M acres. Corn stocks are at 7.808B bushes vs. the trade estimate of 7.801B.
Soybean plantings are expected to total 82.2M acres vs. 82.65M a year ago. Wheat planting are pegged at 49.559M acres vs. 54.644M acres a year ago.
The corn production forecast from the USDA is lifted 99M bushels, with the average yield up 1.3 bushels per acre to 169.3 bushels. Projected use is cut 50M bushels. It adds up to stocks of 1.76B bushels vs. trade forecasts for 1.597B.
Soybean stocks rise to 465M bushels vs. 436M expected.
Wheat stocks rise to 911M bushels vs. 877M expected.
Corn, beans, and wheat are all lower by 1.5-2% following the report.
U.S. corn production is estimated at 13.7B bushels on yields of 168.8 bushels per acre, says the USDA. Trade forecasts were for 13.3M bushels and 164.4 bushels/acre as analysts had priced in a wet early growing season. The USDA last month forecast 13.5B bushels and 166.8 bushels/acre.
Soybean production is forecast to be 3.9B bushels on yields of 46.9 bushels per acre versus trade estimates of 3.7B bushels on yields of 44.6 bushels/acre.
Stockpile estimates were also above forecast - 1.7B bushels at August's end for corn versus consensus of 1.4B, and 470M bushels for beans versus consensus of 305M.
Wheat is also lower after the USDA estimated world inventories at the end of the 2015-16 season at 221.5M metric tons vs. trade at 218.6M.
Near-month corn is lower by 4.7%, beans by 6%, and wheat by 2.6%.
China's surprise devaluation overnight has sparked renewed selling in commodities, a sizable selloff in Europe, and the beginnings of a rough day in equities in the U.S.
Oil is re-testing its bear market lows, down 1.5% to $43.50 per barrel. Copper (NYSEARCA:JJC) is off 3.2% to $2.32 per pound, and the grains (NYSEARCA:JJG) are lower across the board. Gold (NYSEARCA:GLD) is seeing some interest though, up 0.5% to $1,109.50 per ounce.
Germany's 2.4% decline is leading Europe lower, and the Dow is off nearly 1% in the early going.
The 10-year Treasury yield is lower by eight basis points to 2.15%. TLT +1.2%, TBT -2.4%. Checking short-term interest rate futures, they're higher, meaning a smaller chance of Fed rate hikes. The October 2015 Fed Funds contract is up two basis points to $99.76 - pricing in a Fed Funds rate in October roughly 10 basis points higher than it is today.
A report on Tuesday from the USDA is expected to show a 3% Y/Y rise in planted soybean acreage this spring vs. a 2% decrease for corn - the move coming as farmers deal with a 50% decline in corn prices since 2012.
"Economics rule," says one farmer, noting he can break even or make a small profit on beans, but would likely lose money on corn.
Not exactly in a bull market itself, but still at relatively lofty levels, soybeans could face some price pressure from the switch, and big speculators of late have boosted bets on a slide in bean prices. “We’ve got record large soybean stockpiles and the crops in both hemispheres this year were just enormous,” says an analyst. “It’s a perfect storm that’s starting to brew in the beans.”
It's lower yields at work, with the USDA now expecting 173.4 bushels per acre vs. 174.2 last month and the trade guess of 175.2.
The bean crop is now estimated at 3.958B bushels vs. 3.927B last month and trade's expectation of 3.967B.
Wheat ending stocks of 644M bushels compares to last month's 654M.
Corn fired, but has quickly fallen back - now up marginally on the session after initially jumping around 2%. In the green earlier, beans are now lower by 1%, and wheat also erases early gains, now flat on the session.