- Tuesday was an emotionally charged day of trading in the soy markets, following a late Monday announcement of additional US tariffs on Chinese imports. The announcement highlighted the still wide difference between the US and China, and sent Chicago soy markets sharply lower. July soybeans fell sharply in overnight and early morning trade, but ended nearly $0.48 over the early low. The break in soymeal was met with end user demand that lifted July meal to within $1 of Monday’s close and rallied crush spreads. The July crush was $.09/bu higher at $1.64 versus $.89 a year ago. Note that strong crush margins continue into both the end of the year, and well into next year. Politics and trade disputes have made the soy markets near impossible analyse, and the volatility has pushed traders away from the market. A resolution announcement would rally soy prices sharply, but the hard lined stance of both sides has offered little confidence to the market. Without a solution to trade differences, our market outlook has shifted to selling rallies.
- Corn futures plunged to losses of 17 cents in early trading, but settled just 2 cents lower. Funds sold another 33,000 contracts (are now short an estimated net 60,000), and the bulk of trade concern has been digested. Supply and demand remains supportive. Most importantly, Gulf corn is again the world’s cheapest feedgrain. Argentina’s cash market likely bottomed last week as harvest surpassed 45% complete. US yield models point to a 180-183 bu/acre yield should crop conditions be unchanged into late July. Widespread rainfall this week will boost soil moisture in some of the driest areas of the Plains. Our only concern is that the major models have been consistent in returning heat/dryness to the Plains and Midwest by late month. And Black Sea dryness goes on unabated. No pattern change is indicated in the next two weeks. Adverse weather has kept Black Sea basis elevated. Brazilian cash offers are rising amid falling crop size. Following global production losses, US corn is valuable. We would be reluctant to sell this market.
- Long liquidation continues in US wheat markets. Note that managed funds last Tuesday were long a net 61,000 contracts in KC. We estimate half of this length has been shed. However, HRW basis remains firm amid the need for high protein supply, which will be exacerbated if 5-day forecasts verify. NOAA’s latest outlook features rainfall of 3-4” in central KS, NE and SD into next week. US trade rhetoric has failed to improved. US exports to Mexico and China have ranged from 120-210 million bu in recent years (15-20% of total). Mexico secured 73 million bu of HRW in 2017/18. Mexico’s stance is not yet as rigid as China’s but general concern persists. Otherwise, GASC secured 240,000 mt of wheat for August from Romania at $204/mt. This compares to an Egyptian tender executed at $194 in June of 2017. World markets have followed the US lower, but to a lesser degree. We cannot advise shorting this market with Black Sea crops getting smaller, and with Black Sea/EU corn crops to be affected by expanding dryness.