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Thursday July 5th, 2018

September corn closed up ¼ at $3.52 ¼ and December closed up ¼ at $3.64 ½. August soybeans closed down 8 ¾ at $8.39 ¼ and November closed down 8 ½ at $8.55 ¾. September wheat closed up 14 ½ at $5.05 ½ and July 19 closed up 9 ¼ at $5.46 ¼. Crude oil down $.96 at $70.63.

The corn market set off a few fireworks coming back from the holiday, trading as much as $.05 higher after a classic “hard open” this morning. Corn struggled to hold it together, though, eventually finishing “just” fractionally better by the break.  Volume and participation was quite light today, particularly once it became apparent the market was not going to “rip”.  Managed Money traders were viewed net sellers of about 5,000 corn, which would put them net short an estimated 35,000 combined futures and options.

Markets appeared to be torn today between a mildly friendly weather outlook and uncertainty over the U.S.-China tariff deadline tonight. On the weather front, confidence is growing of at least one week to ten days of warmer and dryer weather across the Midwest, which arrives just in time for much of the Corn Belt to start pollinating. Not a story yet, though, given good subsoil moistures for most indeed, the Iowa/SD/MN/NE corridor could use a dry-off period, given reports of flooding and limited crop damage there. Indiana, Michigan, and N Missouri, are the areas trending driest at present. The outlook will become a bigger deal if broad rain coverage does not show up two weeks from now.

The soybean market skidded to another new low close as the markets prepare for the implementation of the trade tariffs that have helped to take prices more than $2 off the May highs.  Along the way, the US growing season has gotten off to an excellent start and funds have liquidated a net long position and flipped to a growing short. It has been the perfect storm of bear events.

The question everybody is asking is how far is far enough?  While we have never encountered a market just like this one, usually it takes the final bull holdouts and I don’t remember the last time I spoke with a bean bull. Maybe the actual tariff play will help the market get past this uncertainty and regain some confidence. After all, non-Chinese export demand been robust. Maybe we have already priced in the worst-case scenario with the fear of exports going away and a record yield plugged into the trade? At some point the value of the underlying commodity will have to be spoken for and traders do not think that value is accurately represented with today’s prices.  Rallies will feel like we are swimming upstream but the market needs to identify a bottom first.

US trade tariffs on $34 billion in Chinese goods are scheduled to take effect at 12:01 a.m. est. with an immediate retaliation in kind expected.  It is possible a deal to delay this phase of the trade war and allow more time for negotiation but at this point there is nothing to suggest progress in that direction is being made as both sides dig their heels in. With the crop report one week from tomorrow privates will be publishing updated crop estimates. Informa was out today with beans yield of 49.5 bpa and crop of 4.425 bb.

The markets had been closed since Tuesday’s early settle, but trade seemed to pick up right where it left off. The wheat complex was once again the leader on the grain floor, as trade began the session with a gap higher start and never looked back. The Chicago rally stalled near the level the previous runs had stalled out at $5.10 in the Sept.

The recent production downgrades in Russia, Germany, Australia and the EU has rallied the Matif wheat over the past five sessions and to within one tick of its May highs. Taking that out would leave the European contract with only two more feats to accomplish – a run at last summer’s highs, and then a run at its contract highs. The strength in Matif was a big influence behind today’s strong start to the day. When Informa came out mid-session lowering its estimate of Russia’s 2018-19 wheat production by 6.0 MMT down to 67 MMT, it seemed to have seal the markets fate that today was going to be a strong day.

As we look ahead towards tomorrow, the grain markets will be front and center in the news as midnight tonight (eastern time) is the trade tariff enactment deadline for the US and China. China already said they will not implement tariffs on US goods right away, in essence saying they will not be the first to fire shots in widening trade dispute. Regardless if a settlement can be reached or not, it is sure to bring volatility to the markets as we end the shortened week of trade. Tomorrow morning the USDA will give us our weekly export sales data. Last week’s sales were a marketing year high 564 TMT, and with prices still in retreat mode, tomorrow has a chance to be solid again. The only caveat is that there were almost no cancellations last week, and highly doubt we see two weeks in a row of that. Look for sales tomorrow to come in between 400 and 500 TMT.

Anna Kaverman

Anna@mercerlandmark.com

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