Peace Headlines Trigger a Selloff, But Buyers Fight Back

Within seconds of President Putin saying he was open for peace talks with Ukraine, the grain and soy markets reacted very bearishly. Computer trading models pressed the sell button to drive prices significantly lower with Dec wheat trading near the 45-cent loss limit before end user buying was able to cut those losses in half by the end of the day. Corn and beans followed wheat lower to a lesser extent, but both performed very well in the day trade with corn finishing 13-cents off the daily lows and just below the daily highs while beans finished the day in positive territory for an impressive rebound performance. Headline risk will remain a constant in the daily trade with Russia/Ukraine headline news a threat in the overnight trade. Weekly export sales were in line with expectations and China was again announced as a bean buyer in the daily sales report to keep the positive attitude intact heading into the US/China trade summit in 3-weeks. Friday’s trade will feature positioning ahead of the long Labor Day weekend and the fear of what could happen in both wars over that break.

News and Notes:

• The only part of the Midwest that is escaping the record early September heat and drought is the NCB and parts of the Great Lake states. Everywhere else (basically south of I-80) will see the heat and drought linger into mid-month. The crop is maturing too fast for a great ending kick, and final US yields will reflect the extra stress.
• The December wheat daily chart is on Page 2 and shows that last night’s low went right to the old contract high at $7.27 that the August 26th breakout easily traded over to set up the run to just short of $7.95 and a new 37-month high in Tuesday night’s trade. The bottom chart shows the extreme oversold conditions that today’s sharp break partially addressed. The strength of today’s rebound shows there are plenty of buyers waiting for these type breaks, regardless of the overbought conditions. Black Sea headline risk is the top concern for the bulls.
• Not only did the funds take on a record large, long position in corn in Tuesday’s trade the open interest in corn topped 1 MBU. Corn is the darling of the funds heading into the southern hemisphere growing season as the history of super El Nino development is not favorable for large parts of Brazil and Australia growing seasons.
• China bought another couple of cargoes of US beans in today’s report while the weekly export report saw the seasonal end of year-old crop cancellation/rolls into the new crop accounting year which started on the 1st. New crop sales were in line with high expectations with corn continuing to impress. The massive rallies in August have not priced corn or beans at end user rationing levels yet.
• What President Trump and Putin know and fully leverage, is that their words matter. Neither of them make any declaration in a prepared speech that is not meant to send a strong message. Putin has no interest in peace unless it is a full surrender of Ukraine and surrender the eastern provinces Russia took over early in the war. Ukraine will not agree to any of that. President Trump says he would like to get the Straits re-opened, but Iran will not agree to any of the conditions the US has proposed. Any headline that suggests otherwise will be sold initially, but like today, there will be lines of eager buyers to grab the discount. Watch how the market trades the headlines, not the headlines themselves.

Today is a great example of what I was highlighting in yesterday’s closing paragraph that the market always has risks. Some of them are scheduled (USDA monthly reports) but most of them are unscheduled (Presidential tweets and international press conferences) are good examples. With so much speculative money invested in our markets who trade with computer algorithms and AI that scan the headlines every millisecond, last night’s collapse in wheat was understandable as soon as the word “peace” was part of Putin’s speech. Also understandable was today’s intra-day trade rebound where intelligent traders and end users understood this was the break they needed to cover their needs and add to their bullish grain and soy bets. High prices create tension, and tension creates volatility. This tension will be a constant in our trade for months to come as very few traders believe either war will end this year, and the clear momentum for US yields is lower. Learn to enjoy the roller coaster because we are on this ride whether we want to be or not.