Blogging by the Bushel
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Market Report

Wednesday August 1st, 2018

September corn closed down 7 ¼ at $3.65 and December closed down 7 at $3.79 ½. November beans closed down 17 ¼ at $9.01 ¾ and January 19 closed down 16 ¾ at $9.12 ¾. September wheat closed up 4 ½ at $5.58 ¼ and July 19 closed up 4 ½ at $5.96 ¾. Crude oil closed down $1.13 at $66.50.

After an extended push higher, the corn market finally faced a modest come-uppance. Futures were ‘a little’ lower most of the day, but the selling picked up steam late, resulting in a lower close. The settlement was $.09 below Tuesday’s high. Funds sold out a good portion of what they bought Mon/Tues, selling 15,000 corn today. It is estimated that they are net short 120,000 combined corn futures and options.

After a welcome respite, “Trade War” tariff headlines have once again taken center stage in the grain room. The latest area of concern is the threatened $200 billion “next round” of tariffs on China. A major motivation behind today’s break was the trial balloon floated this morning that the U.S. was considering raising the tax from 10% to 25%. These rumors were later “confirmed” in a conference call after the close. We will see how the Chinese respond tonight, but they continued to play the “victimization” card in response to the rumors earlier today.

Also contributing to the weaker tenor was a shift in the forecast. The most recent model runs appeared to temper the U.S. “hot and dry” expectations in the forward outlook some.  Beneficial rains fell on the Eastern Belt yesterday, relieving a few key Midwest dry spots. Hope this is not too little too late, with pollination near complete for many.

The soybean market set back as the charts corrected with an assist to a re-escalation of trade war fears and a mid-day weather outlook that showed the forecasted heat blast for next week would not stick around and would be a temporary feature only. From a chart perspective, the $.96 rally off the recent low had left us overbought on a near term basis so a correction was due.

President Trump is threatening to raise the threatened tariffs on $200 billion of Chinese imports from 10% to 25% which threw some cold water on the feel-good news that the US and China were looking to resume negotiations. The review period for the remaining $16 billion of the original $50 billion in tariffed imports ended yesterday which means that portion can be enacted at any time.  There is a conference call taking place this afternoon addressing the tariffs.  Elsewhere in the news, Brazil trade data showed July bean export shipments of 10.2 mmt vs. 10.42 in June and 6.95 in July 17.  Meal exports were 1.73 mmt in July vs. 1.56 in June and 1.16 in July 17.  Oil exports were 211 tmt vs. 126 in June and 137 in July 17.  Corn exports were 1.17 mmt vs. 143 tmt in June and 2.322 in July 17.

There was a lot of red across the commodity sector today, but the wheat complex was able to fend off those negative vibes and finish the day modestly higher. Matif wheat futures was once again the star of the show and this was the biggest influence on the US markets. What made today’s gains all the more impressive was how the other grain markets traded. The bean complex struggled after talk surfaced that the Trump administration planned to propose a 25 percent tariff on $200 billion in Chinese imports, up from an original 10 percent, in a bid to pressure Beijing into making trade concessions. Corn initially seemed to be caught in the middle, initially trading a little stronger as Matif corn futures moved into new highs combined with the strength in wheat.

However, for wheat, news continues to be supportive. Kazakhstan’s wheat crop was lowered today, Germany’s crop is at least 25% below last year’s crop and only getting worse, and on Tuesday we had heard of production reductions coming out of Bulgaria and Sweden. The Asian demand for wheat will need to go somewhere. Egypt announced after the close they were back in for wheat. It will be very interesting to see where Russian offers are. We could very easily see the same scenario we saw six weeks ago when Russia had priced themselves out, thus losing out on any business.

A week from Friday is the next USDA crop production and S&D report, and that may very well be the day of reckoning. There should be huge production downgrades from several countries in this report. In fact, the current estimate for the EU crop is roughly 135 MMT, or 10 MMT below the most recent USDA estimate. Not to mention Russia, Australia, Kazakhstan and Ukraine.

Anna Kaverman

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