November 18, 2003


China-US Trade Talks To Impact On Grain Prices


Political promises may have a far greater impact on cash grain prices than more fundamental factors - such as harvest and farmer selling - this week, as the market anticipates a round of important Chinese trade talks that could greatly impact foreign demand for U.S commodities.


Chinese government grain officials will reportedly arrive in Chicago and Washington later this week, gathering with their U.S. counterparts to prepare deals in advance of a December visit to the U.S. by Chinese Premier Wen Jiabao.


"China is expected to announce the purchase of additional quantities of U.S. grain and other products in an effort to stem a rising tide of criticism over China's burgeoning trade surplus with the United States," said market consultant Rich Balvanz, with Ag Management Services, of Springville, Iowa.


The U.S. Department of Agriculture confirmed the sale of some 20.7 million bushels of U.S. soybeans to China Monday morning and local grain merchants said, reports out of China indicate government officials have told soybean crushers that they will continue to issue as many import permits for soybeans as are needed this winter, as long as they are sourced from the U.S.


China is also key to the U.S. corn market, amid rumors that tight domestic supplies might force Beijing to halt corn exports soon.


"There is much concern over China's poor corn crop, leaving the U.S to fill needs to China's surrounding Asian neighbors," said Alaron analyst Tim Hannagan.


Even so, Farm Progress analyst Arlan Suderman warns that bullish expectations regarding Chinese demand may clash with bearish seasonal tendencies.


"Seasonal charts indicate that corn prices have a strong tendency to move lower in late November," he said. "Prices have trended lower between Nov. 17 and Nov. 28 in 14 of the past 15 years."


Interior basis values were mixed in the U.S. interior Friday, with spring wheat premiums dropping by as much as 6c at some terminal markets in the northern Plains, following a 36% increase in country movement last week.


Soft red winter (SRW) wheat basis at terminal monitored by OsterDowJones also declined by an average of 3/4c Friday, although basis narrowed by an average of 1/2c for corn and 1 1/4c for soybeans. Hard red winter wheat and grain sorghum premiums held about steady.


"It's going to be tough to get soybeans on the scales, now that harvest is over," said one Midwest grain merchant, who reported a a drop of some 50% in spot soybean deliveries at his elevator last week.


Grain futures were generally quiet at the Chicago Board of Trade overnight, with spot corn and soybean contracts ending completely unchanged, while oats and rice were untested.


Dec SRW wheat closed the a/c/e trading session 3 1/4c lower, responding to recent rain in the southern Plains, news that the European Union does not plan to drop import tariffs on wheat, and a 45% drop in export sales of U.S. wheat last week.


Cash price indexes maintained by the Minneapolis Grain Exchange presently place elevator-level bids for U.S. grain at approximate averages of: $2.24 for corn (up 1/4c Friday), $7.47 3/4 for soybeans (up 2 3/4c), $3.68 1/2 for hard winter wheat (up 1/2c), $3.81 for SRW wheat (up 1c), $3.81 for hard red spring wheat (down 1 3/4c), $3.62 1/2 for soft white wheat (unchanged) and $3.78 for durum (unchanged).

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