Grain, livestock and outside markets are all rallying early Tuesday.
What’s driving the risk on buying across the complex and will it last?
Darin Newsom, Senior Market Analyst for Barchart, says the close is more important than the open in volatile market environments.
It may be just an oversold bounce as the equity markets have reached bear market territory but that stabilization is helping to firm up the grain and especially the livestock futures early.
He says grains are trying to price in some weather concerns.
However, he’s not sure if the markets are really trading weather to the degree they should be as flooding dominates parts of the Southern Corn Belt and wheat areas have seen heavy rains and frost.
Traders seem to be brushing off the escalating tensions between the U.S. and China as President Trump threatened Monday to raise tariffs another 50% if Beijing does not back off of their 34% retaliatory levy.
Newsom doesn’t think the market is becoming numb to the headlines just taking a breather, as these tariffs will in essence choke off demand for U.S. ag products with the tax hike that is being placed on these products.
So far the export sales and shipments have not indicated the slow down in demand and there was even a flash sale of 9.45 million bu. of corn to Spain early Tuesday.
However, these sales are lagging and only the upcoming reports will show the real effect of tariffs on slowing or stopping demand in his opinion.
Newsome says funds have been liquidating positions in the equity and outside markets and even the agricultural commodity markets due to the uncertainty of trade policies and the talk of a global recession.
Meanwhile, the U.S. and China have escalated their ongoing trade war.
Newsom says this won’t change China’s agenda to make the U.S. a secondary supplier of soybeans, especially to South America.
He also cautions that the real danger is in the corn market where alienating Mexico may force them to switch their purchases to other sources, most notably Brazil and Argentina.
Newsom is fearful the livestock sector will continue to see fund liquidation on rallies as the fear of a global recession and lower protein demand causes speculators to shed their massively long position, especially in cattle.
He says just the uncertainty is causing investment money to sit on the sidelines and the tariff war is masking a bigger or hidden agenda by the Trump administration.
