Commodities Report: Trade Issues Influencing Markets
Trade issues have continued to sway the food commodity markets during the last several weeks. Optimism around a trade deal with China faded during the summer, which appears to be hurting the Chinese economy more than the U.S. The main Chinese stocks index, Shanghai, neared four-year lows as of early August. Conversely, optimism around a trade deal with Mexico and possibly Canada has improved. Reports are that the newly elected Mexican president, who will take office December 1, is seeking to get a trade deal done significantly before then. Thus, it is more likely than not that the overall existing trade situation will be better six months from now than worse. And this suggests that the market risk to the trade issues is to the upside. But protein supplies are expected to remain relatively ample. Forward beef sales were robust during the early summer because of low cattle futures markets. This could tighten the spot beef supply during the late summer and early fall. But drought in the Southern Plains is likely to push more cattle into feedlots in the coming months, which should boost beef production in 2019. Pork output growth next year is anticipated to surpass 4% as the hog herd continues to build. And chicken production capacity is on the rise, which should fuel adequate chicken supplies. This all assumes, however, that the existing feed crops in the U.S. finish well and that there are not major issues in the Southern Hemisphere in the coming months. Crop ratings for corn and soybeans in the U.S. during early August were some of the best in the last few decades. But crop expectations have diminished some due to pockets of adverse weather. And then there’s wheat, which has rallied during the summer. Fading crop conditions for spring wheat in the U.S. and challenging weather in other parts of the world are tightening the expectations around world wheat supplies. This could be supportive of wheat prices in the coming months.