Trade uncertainty unnerves the markets

The WASDE report might have set the direction, but trade issues set the pace after recovering prices tumble again

After tumbling and bouncing last week, grain and oilseed markets started out July 16 with greater optimism, potentially having set the bottom for several crops.

Soybeans began climbing back up from a beating after the U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates report July 12. Near double digit gains were made, locking in 1.5 percent by the end of the day. At the same time wheat ended the week better, only to lose ground early this week. Corn, a big loser last week, made up ground on Monday, but prices are still well below where most farmers need them to be.

There were no big surprises in the monthly report. The markets, facing serious trade problems caused by the U.S. tariff impositions, look for any news to go lower.

American soybeans have recovered on good news with domestic crushing at record July levels and exports remaining strong, at the top end of the trade’s estimates and projections.

More important, exports were nearly double last year’s for the same week, but no news might be good enough to lift prices over the long haul. And for corn, technical issues such as the market seeing a 47 percent increase in the short positions to nearly 105,000 means that any day-to-day upside will be drastically limited.

The WASDE report cut the projected seasonal average for corn to US$3.80. Soybeans were down about 75 cents to $9.25 from a month earlier.

Brennan Turner of the grain marketing business FarmLead said producers might not want to count out the commodity markets from going lower again, but on a week to week basis producers should be considering that the business is “resetting the playing field.”

“We are experiencing an exploratory phase in the markets,” Turner said about where the grains and oilseeds have been going.

“China is the new price setter. We knew that from what we have seen in flax, peas and (Canadian) wheat. Now it is showing up in all the markets.”

He said the $2 drop in soybeans in as many months over trade issues is something that the market fundamentals of supply and demand can’t predict or contain.

“The markets aren’t really set up for this kind of uncertainty. (The trade) handles uncertainty by exiting the market,” said Turner.

“Nothing has changed about the demand and the use; just who will supply it to whom,” he said.

Wheat made big gains last week, but early this week those were handed back, dropping July 16 by 8.5 cents on September hard red winter to $4.84 and 7.5 cents on Minneapolis spring wheat to $5.28.

On the use side, Turner suggests that the industry might be focused on a trade war when they should be taking a longer view of what the Chinese consumer is thinking about.

“There are some important factors such as slowed growth (in the economy) and high housing prices that are creating some public issues in that country, not unlike the situation in the U.S. in 2007,” he said.

Arlan Suderman of INTL FCStone also suggests that the market needs to try to look beyond the international trade disputes.

While the USDA’s crop conditions reports are suggesting that there is a record soybean and corn crop on the way, he isn’t convinced, but that is also putting downward pressure on prices.

Dry and wet regions of the U.S. Midwest will likely temper the yields, and unless the rest of the month and August turn mild, yields will likely be lower than projected and could sway markets higher.

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