Grain Rally Wobbles as Oil Drops and China Stays Silent

After positive comments about an end to the war with Iran and ship movement in the Straits, the energy markets fell sharply from early week highs which pulled the bio-fuel markets of corn and beans lower in the wake. China has neither confirmed nor denied the additional ag demand that President Trump reported on Sunday which is also making the bulls nervous because an end to the war, a sharper pullback in oil and a Chinese rejection of the additional $17 billion in additional purchases would set up a nasty correction in the markets. The rest of the week will be positioning ahead of the 3-day Memorial Day weekend as news about today’s key market movers could shock the markets over the long weekend.

News and Notes:

-  Steady to heavy rain continues to fall from Texas to Ohio today with mor forecast into early next week. Within 2-weeks, farmers in the wettest areas from Missouri to Ohio may be forced to decide between prevent plant, replant or switching corn acres to beans.

-  The daily July diesel chart is on Page 2 and shows today’s sharp pullback on Iran optimism. While prices fell over 21-cents a gallon, the selloff stopped right at the 20-DMA (red line) but did not close too far above it. The 20-DMA has acted as strong support for a month, but technical traders will not be able to stop another selling onslaught if the Straits head toward reopening. An end to the war and reopening would bring in a downside target of $3.56 then $2.93. Today’s close was $3.84.

- Announced demand news has been slow this week, but the weekly ethanol grind was solidly higher from last week and the same week last year to 327 MGa. Ethanol margins are great with the high gas prices at the start of the US summer driving season, so it will be interesting if margins hold up if there is a deeper correction in gas prices.

- The wheat markets did not suffer as deep of pullbacks as corn and beans today as the US crop ratings indicate even more reduction to total production. Strong wheat prices will help support corn but be careful about holding off on wheat sales as there is wheat harvested somewhere in the world 11 of 12 months and the US supply loss will be quickly priced in the market as we have seen multiple times in past wheat crop losses.

Trying to decide the outcome of the current Big-2 stories is challenging as a clean sweep in either direction will trigger sharp moves. If the Straits reopen and China denies any additional interest, the markets have nowhere to go but lower, and potentially sharply lower. A split of the news likely causes a grinding neutral sideways trade while a bullish sweep of no reopening and Chinese actions to begin to secure more US ag goods, resets the demand balance sheet and bring in $5.25+ and $12.50+ new crop prices. It may be a slow process to get final decisions on both issues, but they will continue to dominate the daily movement as the US crop is going in quickly and developing under limited stress.