Wheat hits three-month high in anticipation of US-China talks

Wheat hit its highest level in almost three months as traders weighed China’s cautious approach to U.S. tariffs and the market awaited details on possible talks between the leaders of the world’s two largest economies.

This comes as a new trade war is brewing between Washington and Beijing, the expectations of which have been stirring up grain markets for the past week. However, China’s tariffs, announced on Tuesday in response to the first steps of the United States, are seen as balanced and indicate that Beijing is trying to avoid the worst-case scenario of a serious escalation, according to Bloomberg Economics analysis.

“China’s restrained reaction and generally friendly tone in state media and social media ahead of the US deadline indicate an attempt to create a favorable backdrop for the talks,” the report says. It also mentions the possibility that the US tariffs will not be as high as the 60% that Trump threatened during the campaign.

In the previous session, grains, including wheat, rose after Beijing imposed tariffs on U.S. energy and agricultural equipment, but left grains out, just minutes after Trump’s 10 percent tax on Chinese goods took effect, trimming some of the initial losses. On Monday, Trump said he expects to hold talks with China “within 24 hours,” but he has since hinted that the talks could be delayed.

However, there is still concern that Sino-US trade tensions could affect agricultural commodities such as soybeans. In China, prices for soybean meal rose on Wednesday, the first day the market opened after the Lunar New Year.

“Although agricultural products are not the target of Beijing’s countermeasures, the market is still concerned about the uncertainty of future Sino-US relations,” said Rosa Wang, an analyst at Shanghai JC Intelligence Co. Ltd. a Chinese commodities consultancy.

Soybean meal prices also followed the rise in Chicago prices, while weather problems in South America affected quality in some regions and supported global prices for the oilseed, Wang added.

China is the world’s largest importer of soybeans, as well as a major buyer of corn and wheat. US tariffs could reduce demand for soybeans, jeopardizing exports worth $10 billion or more.

Prices for soybean meal, which are most actively traded on the Dalian Commodity Exchange, rose by 3.2%, the highest intraday jump in three months. Futures for soybean oil on the Dalian exchange rose by 2.7%, and palm oil jumped by 2.1%. Chinese corn rose by 1.1%.

Meanwhile, Trump’s one-month delay in imposing 25 percent tariffs on Canada and Mexico also brought relief to grain markets. The dollar’s decline also increases the competitiveness of U.S. grains, CRM Agri said in a note.

Tags: China, prices, wheat, USA