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Tuesday July 31st, 2018

September corn closed up 5 at $3.72 ¼ and December closed up 5 ¼ at $3.86 ½. November beans closed up 28 at $9.19 and January 19 closed up 28 at $9.29 ½. September wheat closed up 7 ¼ at $5.53 ¾ and July 19 closed up 4 ¾ at $5.92 ¼. Crude oil closed down $1.32 at $67.63.

Despite a few intraday hiccups, the corn market kept the bull fires burning, finishing higher Tuesday. Corn has had plenty of assists on its recovery path, catching nice tailwinds from rallies in wheat in recent days, and now a near $.30 bump in beans. Still, give credit where credit is due. In three weeks, corn futures have popped $.35, nearly retracing half of the sharp June break in the market. Funds stayed on the buy side, picking up another 10,000 today.

There was a little extra excitement around the markets on the open. Minutes before the morning session started again, Bloomberg News reporters blasted out headlines implying that the U.S. and China were finally entering more significant talks to “defuse” the Trade War. This was the spark that sent beans higher. In raw numbers, corn exporters have more to gain from a Mexican trade deal (rumors say they want one by the end of August), but a rising tide lifts all boats. There is also some suspicion that China may commit to buy some U.S. corn (and perhaps ethanol) if a trade deal should come to pass. The problem with trying to trade such speculation is no one knows exactly when this will go down.

The return of “hot and dry” conditions to the Midwest later this week also may have helped stem some gains intraday. Though yesterday’s “unchanged” national corn ratings may have soothed junior traders, some notable state-by-state condition declines caught the eye of more seasoned participants. The three major “I” states (30 mil acres) all saw Good-Excellent ratings slip between 1-3%, while neighbors KY/TN (another 2 mil) were off 9-10% G-E.  This was apparently offset by improvements in relatively minor states:  G-E up 4% in South Dakota & Texas, along with a 15% jump in PA and 6% in CO. Those four states account for 10 million acres.

The soybean rally came into to the day displaying some resiliency with a stronger overnight performance despite steady and really good crop conditions in the crop progress report and bigger than expected deliveries. Then, right before the markets reopened after the biscuit break, we poured gasoline on the fire with the news services reporting that the US and China were back to exploring the re-opening of trade talks. The charts have turned, the weather is flashing heat and drying in the west, fund shorts are on the run and now we may have a light at the end of the tunnel with trade. Both the US and China reportedly agree on the need to restart talks although the format, specific issues to be addressed and timetable had yet to be determined.  Coincidentally, or not, tomorrow is the date that the US is scheduled to implement the tariff on the remaining $16 billion in Chinese imports as part of $50 billion package where $34 billion was imposed on the first of this month.

End of the month today and it certainly felt like fund flows were active. It is estimated that funds today bought 12,000 contracts beans. The crop progress report showed soybean conditions at 70% gte, unchanged from a week ago where the market was expecting steady to 1 lower and compares to 59% gte this time last year. Some want to talk about how misleading the conditions are because of the reductions in major crop states yet an unchanged overall rating. Some say that the confidence in the USDA crop ratings is pretty low to begin with, particularly after last year where the condition ratings totally missed the monster crops that were in the fields. Could it be the opposite this year?  I’m not suggesting there are any disasters out there but there are enough pockets out there to doubt some of the high end yield estimates and obviously, August weather will be a big factor.

The wheat complex finished the day on a bit of a run. The rally continued over the balance of the morning and the markets entered the morning break trading right off its evening’s highs. There were a few bits of fresh news that may have sparked the overnight rally in Matif. Russia’s weather forecaster is predicting the Russian grain crop to be down between 15-20% from last year, but that is already known.

Right before trade re-opened for the day session, Bloomberg ran a news article that said the US and China are trying to restart talks aimed at averting a full-blown trade war between the World’s two largest economies. More political talk but it was enough of a statement to fuel a strong start to the day in the soy complex, and that carried into corn and wheat. Today’s midday break was a little puzzling. Not that we expect wheat futures to trade higher every day, but we continuously hear of world wheat production reductions. Remember, we have a USDA crop production S&D report a week from Friday, and there should be production downgrades from several countries in this report.

Anna Kaverman

anna@mercerlandmark.com

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