Can we rise from the trade war ashes?

Published on: 09:07AM Aug 06, 2019

While it is difficult to find anything humorous in the market action as of late, I did have to chuckle a bit after reading a comment about the overnight action in the corn market that suggested the weakness was due to the crop condition report released yesterday afternoon.  I guess some might consider a 1% drop in the good/excellent category and an overall rating of 57% compared with a year ago at 71% is a negative influence on price, but I shudder to think how bad it would have to be to consider the change positive. The point is, that would have to fall into the category of off the cuff excuse when no other reason would come to mind. 

Of course, some people do not like to lift up technical factors at all, but it should be pointed out that December corn posted a rather impressive looking outside higher reversal yesterday and may have gotten just a bit ahead of itself and hence the overnight pullback.  Regardless, I do believe that this was another verification that the 4.05/4.00 level in the contract represents a place of value where we should find buying interest emerge. Indeed, if there were some actual negative news delivered, such as something bearish on next week’s reports, there could be justification to push below that level, but outside of that, it should be the low end of this market for now.  On top of that, technical indicators have returned to a very oversold position, and I suspect more than a few shorts may begin feeling just a bit uncomfortable with the prospect of just how much more than can wring out of the downside.

Corn

As I have commented numerous times in the past, this is the time of the year that markets focus on production and/or supply and tend to gloss over demand and that is probably a good thing at this point.  Late last week the Census Bureau released June export numbers and for corn, we shipped just 3.07 MMT.  This was not only the lowest June export number in six years; it was the lowest figure for any month since November 2017.  It is not difficult to determine who is taking the lion’s share of the corn trade as the combined exports from Brazil, Argentina, and Ukraine are running over 50% higher this marketing year than last. It should be noted that soybean exports in June were very solid at 3.19 MMT, eclipsing last year’s record of 3.12 MMT.  Of this total, 54% were shipped to China, which unfortunately brings us to the next topic and the key stimulus of the recent pickup in volatility in so many markets; Increased Trade War Rhetoric.  In response to President Trump’s threat to place additional tariffs on Chinese imports, the Chinese have stated that they will not purchase any more U.S. ag products and are planning to increase tariffs as well.  The good news, if you can call it that, is that stated that any additional tariffs would be placed on products purchased after August 3rdso the 4.25 MMT on the books and yet to be shipped, should not be affected. I should note that the hog market has not taken any of this increased bluster well and over the last couple weeks has dived down to last fall’s ranges.  Not a pretty sight.  Heightening the tension in markets yesterday, The Trump administration accused China of manipulating its currency, which if doing nothing to stop its decline counts as manipulating, then that is correct, as I noted yesterday, it had fallen to decade lows. This could be difficult to defend seeing that we cut interest rates last week, but I understand China did step in to try and shore up the values overnight.  

Regardless, after a rather volatile and panicky day in commodities as well as equities, DOW -767, and financials where 10-year notes reached the higher point since September 2016 and the yield curve inverted further, it is nice to see prices everywhere stabilize some this morning.  Possibly, this will allow grain and soy markets to refocus on the reports due out next week.  I should probably not be anxious for any USDA report, but at this point, it may be a nice distraction from more trade war talk.