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Watch for Corn Put Selling Opportunity
The recent sell-off in the grain markets has been disappointing for producers. Yet, behind every market move there is a silver lining and opportunity. It is about perspective and willingness to accept where the markets are and looking for opportunity. Prices have slid much further and faster than anticipated, since peaking just prior to the Memorial Day weekend. The recent turn down reflects good weather, technical selling, and concerns over trade and tariffs. Managed money was aggressively long futures, and since early June have exited and are now net short. Yet, despite an earlier-than-expected price decline, the seasonal price pattern (for the most part) is intact. That is, prices tend to move upward throughout the spring months and decline in June or July if planting and early growth are on pace. Grain prices have moved down to levels that could suggest we are already pricing in a large crop, and there is limited downside. As disappointing as the market is for producers, end users are getting a bargain. Prices have dropped low enough that long-term buys are recommended. What is considered a bargain? A bargain would be buying commodities below the cost of production, even if it is still early in the growing season, before the crops are made.
Rising US trade worries put fresh pressure on grain prices
Grain markets suffered a fresh pummeling, as the US stoked trade tensions with China, a major ag buyer, and other partners too, although most contracts stopped short of matching last week’s lows. Richard Feltes at broker RJ O’Brien flagged “negative impulses including new restrictions on Chinese investment in US… and the growing likelihood that Chinese tariffs on US ag exports will be imposed July 6”, besides weather factors. In fact, share markets proved notable victims of the fresh round of trade jitters, after the administration of US President Donald Trump revealed it was preparing to escalate its trade battle with Beijing by restricting Chinese investment in US companies. And other countries were dragged in to the controversy too, with Steven Mnuchin, the US Treasury secretary, saying that “investment restrictions” would not be limited ot China “but to all countries that are trying to steal our technology”. Mr. Trump himself announced, via Twitter, that “the United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. “Trade must be fair and no longer a one-way street!”
Summary:
The US Soybean crop condition rating was unchanged while The US Corn crop edged lower. The USDA released its first ratings for Soybean blooming and Corn silking. The good/excellent ratings for Corn and Soybeans came in within trade expectations. The US Corn crop was rated at 77% good/excellent which was slightly lower than last week’s rating of 78% but is still well ahead of last year’s rating of 67%. The USDA pegged the US Soybean crop condition for Soybeans at 73% good/excellent which was the same as a week ago but far exceeding the 66% from a year ago. The USDA rated 12% of the Soybean crop in the blooming stage versus the 5% five-year average. The USDA reported that 77% of the US Spring Wheat was rated as good/excellent versus 78% for the prior week.
The markets were down across the board following tweets from the President that showed no signs of backing off of tariff threats.
