Trade meltdown washes away price support

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corn and soybean fields

Recent developments in the trade negotiations with China caused grain markets to plunge on the futures markets in Chicago.

December corn futures and November soybean futures fell through support lines. The corn seemed to find a bottom quickly, but the soybeans are still hunting for support on the bottom.

Bad news

U.S. trade negotiators returned Aug. 1 in the morning from China. They were a day early and bore bad news. The talks went badly, so they came home to report to President Trump.

Trump immediately tweeted he was putting 10% tariffs on all Chinese goods that had not been covered with tariffs previously, starting Sept. 1. He did this even though it was 1 a.m. in China and Chinese officials could not be reached with the news.

For more than eight months, we have been two weeks from a trade deal, as someone in the trade said recently. The market originally hung on every nuance of news from trade talks, then became less convinced a trade deal would be reached.

Now the talk is we are trading without expectation of a trade deal, but when talks melted down, the traders still reacted negatively.

Futures

December corn futures had been holding some support just above 4.20. We fell through that Aug. 1, all the way to 3.973⁄4. Overnight Aug. 4, we were down 10 cents to 4.003⁄4 after better trade Aug. 2. Prices recovered, however. Aug. 5 at 8:30 a.m., we were down 8 cents, but gaining.

We closed at 4.143⁄4 after a 4.161⁄4 high, and a gain for the day of over a nickel after being down a dime. This Aug. 6 morning, we are down 2.5 cents at 4.121⁄4. This seems like a bottom, although we need a couple of more days to gain confidence.

The soybeans are weaker, which is understandable, since soybeans are the big export to China and have been very negative as trade talks deteriorated. November beans are currently trading 8.701⁄4, up 1.5 cents. The recent high was only six weeks ago at 9.48. So, we lost most of a dollar in that time.

We got as low as 8.901⁄4 July 7 and thought that was a disaster then. Six days later, we had recovered to 9.361⁄2 and breathed a sigh of relief. Aug. 5, we hit a new recent low of 8.541⁄2, and overnight Aug. 5, we touched 8.55.

Trading lower

The good news is we have seen a small bounce in the beans. The bad news is the November contract low is at 8.151⁄2, and there is no guarantee we won’t take a run at it.

Last week, we looked at the struggle between technical trading, following the charts, and fundamental trading, following supply and demand numbers. Trading the last few days represents the worst of both.

We are trading lower because we may have more trouble with exports than we anticipated. China has reportedly given orders to not purchase any American agricultural goods, just a couple of weeks after they said they would purchase an undetermined amount without tariff as a goodwill gesture.

China is working towards being our second-biggest ag trading partner, after Mexico. The market thus goes sharply lower on export news while the big fundamental story of the year goes ignored.

Crop conditions

Production is still very much suspect in this country. It feels like crops have improved, but national statistics show we still have condition ratings far below normal.

The U.S. Department of Agriculture reported Aug. 5 Ohio corn condition has declined one point in the excellent category, giving us 31% good, 3% excellent instead of the 4% of last week.

The U.S. is rated at 47 plus ten, also a 1% drop in the excellent category.

Last year we had a total of 71% good and excellent.

Soybeans in Ohio are rated at 27% good, 2% excellent. The U.S. is at 45 plus 9, the same as last week. Last year, however, we were 51 plus 16.

Soybean and corn growth is way behind normal. Only 53% of Ohio corn is silking, with 87% being the average at this time. The U.S. is at 78% but 93% is the average. We don’t even know what corn we have planted.

The USDA estimated 90.7 million acres planted, while most analysts think we have 12 million acres of prevented planting, and some think 15 million is possible. The USDA still projects a crop of 13.8 billion bushels. Some think the reality will be closer to 12 billion.

This crop has a long way to go. We will make a crop that is sharply less than normal, yet prices are lower because of trade talk. This is going to be a long summer.

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