Grain Markets Pause as Traders Wait for China to Show Its Hand

The grain and soy markets were much quieter today after Monday’s volatile trade as both end users and producers waited for news of any type of Chinese confirmation of eh extra $17 billion in ag purchases. Nothing concrete was announced by China nor were any cash related US sellers talking about buyers calling from China to get prices. The markets are back to a wait and see mode for now, as an end to the war and re-opening of the Straits would be negative for grain and soy prices, as President Trump’s team continues to negotiate and extend the ongoing cease-fire. Any confirmation or denial about the increased trade numbers from China is the key market mover the rest of the week.

News and Notes:

- Excessive rain will be seen from Texas to the Delta to the Ohio Valley for the next 5-7-days to further waterlog the Missouri to Ohio corridor that has been too wet all spring. Interestingly, IL, OH, and IN are all at their 5YA in corn and bean, but slow emergence, crusting and expensive nitrogen leach are concerns that will become part of any prevent plant or switching corn acres to beans. World weather remains a non-issue in moving the markets.

- The November bean daily chart is on Page 2 and shows today’s day of consolidation trade after Monday’s sharp rally. After Friday’s selloff, the funds added roughly 175 MBU of beans back to their net long position which is now back to 1.065 BBU. Today’s close is hovering just under last week’s contract high at $12.14, which the market will test unless a large piece of bad news enters the picture. Be a catch-up seller, but you may want to consider smaller percentages than normal.

- Weekly planting progress came in at expectations with 76% of the US corn crop planted while beans advanced to 63%. For mid-May the corn pace is record fast while the bean pace is well ahead of the 5YA. The biggest news in the weekly report was the miserable wheat crop ratings in the Plains states with the lowest mid-May rating in 37-years at 27% G/E. The scariest numbers are the Poor/Very Poor ratings at 41% with the key states of Kansas and Colorado at 58% P/VP while Nebraska is a staggering 84% rated P/VP. Further yield reductions are expected in upcoming USDA reports.

- Thanks for all the calls and emails about potential re-ownership of your sold bushels in case the markets continue to grind higher on Chinese demand confirmation. HE volatility premium is huge for both calls and puts which makes several strategies not very attractive if you are working on a tight budget. Please call us with any questions and we can walk you through the process and help you determine if it is an appropriate strategy for your operation. Know what tools you have available, even if you are not going to use them all.

- Today’s close in crude oil was the contract high close and shows the sensitivity of crude to Iran news but also how it will price in any Chinese confirmation of more energy purchases from the US. Since the US is the world’s largest energy supplier, more US production and to fill additional Chinese orders, would take away some of Iran’s importance as a main supplier to China.

My normal 30-40 pages of research reading has doubled each day this week as the news is consistent but the analyst opinions are wide ranging from “another $17 billion in US ag imports fundamentally changes our markets for years to come” to “until China starts showing up on the daily export reports, this is a smokescreen” to “this is just a worldwide game of musical chairs with too many bushels in the world pipeline.” I agree with the last statement. Just like with every major news story, the demand is somewhere in the middle. For example, if China buys an extra 1 BBU of corn from the US, then Mexico will probably have to go to Argentina and Brazil to fill some of their corn needs. The biggest problem in all of this is the “competitively priced” caveat in any agreement with China. They are not going to be contractually forced into buying US bushels at higher than world fair value. China does not move quickly on any trade agreement, so confirming the proposed extra purchases will take some time.