China Trade Shock Sparks Massive Grain Reversal as Crude Oil Surges Again

Sunday afternoon’s surprise announcement by the White House of a wide-ranging outline for future US/China trade sent the markets sharply higher overnight with additional gains through the day session. China potentially agreed to buy an additional $17 billion on top of their current pledges of $10-$12 billion with a larger more cooperative trade outlook in the years to come. Many questions remain, but after last week’s sharp losses when  the trade summit did not have the bullish ag news that was expected, the immediate reversal did take the grains and soy complex back into mid-range from the last several weeks. If fully realized this could be an enormously positive demand driver, if not executed, it will shift the summer outlook from bullish to bearish very quickly. In other news, crude oil had another volatile two-sided session before making new contract highs in the July contract on an increasingly aggressive tone from Washington toward Iran.

News and Notes:

- Although most states will welcome the coming wetter pattern, the wettest regions of April in S IN and S IL will receive more rain to slow remaining planting. Seasonally warm temperatures are forecast into late May. SA weather continues to be closely watched heading into Brazil’s safrinha corn crop pollination, but recent rains have capped April’s stress on 30% of the crop.

- The December corn chart is on Page 2 and shows the bi-polar behavior of the day-to-day trade as China and/or crude oil have not allowed for any quiet days. Last week’s trade summit disappointment was cut into today, but prices only recovered to mid-range for the last month. The funds added to their very large net long position today, but last week’s softening of the overbought conditions does (technically) allow for the funds to start another buying spree.

- Key news for the next few days will revolve any Chinese action to confirm agreement to the trade Fact Sheet . At last week’s meetings the US did drop the 10% fentanyl tariff (saving China roughly $30 billion) and opened Chinese markets for US beef imports, but public confirmation from China or actions like reducing tariffs on US grain imports,, will decide  market direction the rest of the week.

- With crude  oil making new contract highs today and the closely followed 10-year Treasury yield climbing over 4.5% for the first time in 15-monts, investors are buying a broad basket of raw materials which is helping everything in the ag sector.

- The only time China bought over $30 billion of US ag was the record in 2022 of $38 billion. That number has steeply declined as three consecutive record SA corn and bean crops took our share. Last year’s $8 billion total and this year’s 1st quarter purchases of only $5 billion confirm the massive potential upside. The Fact Sheet only has dollar totals and no specific bushel commitments, but at current prices (not including freight) that could result in roughly 4.3-4.5 BBU of total exports.

- While today was about China, the potential extra demand will only be a part of any US farmer return to solid profitability as fertilizer prices continue to rally as crude rallies on the ongoing closure of the Straits. Follow through on this trade deal and a re-opening of the Straits would be a dramatic change of position for on-farm balance sheets.

The consistency of President Trump’s flair for weekend dramatics was on full display again Sunday as a substantially larger total of Chinese ag purchases from the US was announced. It is unclear why Sec Bessent said no new purchases were agreed to on Thursday and then announce a potentially blockbuster shift in US/China trade relations and cooperation. Regardless, the details in the White House Fact Sheet released on Sunday afternoon added an additional $17 billion to China’s US ag imports and plans of cooperatively developing a Board of Trade to handle future US/Chinese mutual trade. Despite the obvious questions surrounding the announcement (no Chinese confirmation, no specific enforcement criteria, and the ever-present criteria that China will only buy US goods when they are competitively priced in the world market), market sentiment shifted quickly. It is impossible to know if this is a public attempt to shame China into a trade deal, or if more behind the scenes work is being done for China’s help to reopen the Straits and this is a political diversion. Expect the unexpected with this administration but caution is warranted anytime China is involved.