It would seem that there is really just one story of note as we begin this new week, and that is of the drone strike on the major Saudi oil facility. As a precautionary measure, the Saudi’s have closed down production at other facilities, but it is estimated that currently, we have a loss of around 5.7 million barrels per day, which represents around ½ of the Saudi output and 5% of the global output. As you would expect, crude oil prices reacted with a sharp rally as trade commenced and quickly recorded the largest single intraday rally, percentage-wise, since January 1990, which was the day that Saddam Hussein invaded Kuwait. Take note that crude has been trending lower since spring of this year as output has been overtaking usage as the global economy slowed down and even with the initial reaction this morning, we remain well below this year’s high, let alone the 2018 reaction highs. The supply concerns and spike in prices helped lift the corn market nearly 3-cents higher on the open last night but as crude faded from the extremes, so did the corn trade as the world awaits additional news. As of this moment, as I write, grains are steady to a smidge firmer with only bean oil higher in the soy complex.
I do not believe the lack of upside follow-through in the grain/soy markets this morning should be of significant concern for any would-be bulls. The performances unleashed last week should have confirmed we have seasonal/cycle low now in place but, until we provide the spec fund, who remains very short in these markets, an incentive to exit, addition grain could come grudgingly. As I traveled over the weekend, I was impressed by the number of fields, particularly soybeans, which appear to be turning quite rapidly. Knowing when many of these were planted, it is difficult to imagine yields will be outstanding, but harvest psychology could prevail at least over the short-term.
For months the Chinese government was in denial, at least publicly, about the magnitude of the African Swine Fever crises but most in the industry knew that such repression of news could only last so long and each month they seem to catch up with reality. August numbers have now been released, and it was reported that the pig herd in that nation stood at 38.7% less than the prior year. This follows the 32.3% lower number in July. One has to suspect that part of their motivation to keep the issue under wraps was to try and prevent consumers from panicking, but that chicken (no pun intended) appears to have come home to roost as well. As of September 4th, pork in China reached a record 40.5 yuan, or around $5.74 per kilo, which is up 78% from a year ago.
Of course, front and center on the minds of many for the next several weeks will be the prospects for the U.S./Chinese trade negotiations, and to date, both sides have been sounding more amicable than in times past, i.e., delays or exemptions of tariffs. As has been rumored, China is stepping up to the plate with a few pre-meeting purchases and this morning it was announced they purchased another 256,000 MT of beans. Hitting singles on a regular basis is just fine by me. You do not have to always hit home runs to keep the game interesting.
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