DTN Before The Bell Grain Comments

Intensified Trade Fight Intensifies Soybean Losses

Elaine Kub
By  Elaine Kub , Contributing Analyst
(DTN photo by Greg Horstmeier)

Morning CME Globex Update:

The soybean market led the losses in the grain markets overnight, demonstrating investors' outlook about which assets will be most hurt by a trade war between the world's two largest economies. Bearish crop ratings and a stronger U.S. Dollar Index are additional pressures on grain and oilseed prices Tuesday morning.

Other Markets:

Dow Jones: Lower
U.S. Dollar Index: Higher
Gold: Lower
Crude Oil: Lower

Corn:

The dollar is among the few assets experiencing thriving buying interest as investors pull out of risky positions amid a developing U.S.-China trade war, and a stronger U.S. dollar has pressured corn prices nearly a dime lower Tuesday morning, to fresh contract lows. The continuous front-month chart may eventually aim for its low of $3.28 1/2 from last August, which is now only twenty cents away. All else being equal, without a trade war, the corn market might still have received a bearish outlook this week after the Crop Progress report documented a historically beautiful crop, with 78 percent rated good or excellent (the 'excellent' fields account for 19 of those percentage points). Meanwhile, in the cash corn market, the DTN National Corn Index, an average of cash bids around the country, was $3.31 Monday, showing the national average basis level steady at 30 cents under the July futures contract.

Soybeans:

Soybean futures prices dropped as much as 26 cents during Tuesday morning trade, now 16 percent off their May high and leading the list of collapsing markets across the globe. There was evidence of some bargain-hunting traders stepping in to "catch a falling knife" in the soybean market on Monday, when it seemed like the approaching U.S-China trade war was already priced into the market. But the knife keeps cutting. Soybeans and sorghum are the products that get most of the headlines in this trade fight (and thus, they get the most bearish attention from traders) when China suggests retaliatory tariffs against them, but now a fresh list of Chinese products on which the U.S. threatens to place tariffs covers everything from fresh fruit to Vaseline to hay balers to the magnets used in MRI machines - none of which seem like they would aid "national security" by becoming more scarce and more expensive. The DTN National Soybean Index was $8.46 Monday, with basis bids steady at an average of 63 cents under the July futures contract.

Wheat:

The U.S. spring wheat crop has greatly benefitted from the rains of the past week, with another 8 percentage points being added to the 'good' and 'excellent' categories of the Crop Progress report (now 78 percent). Minneapolis wheat futures are holding up somewhat better than the KC and Chicago contracts, which may receive more attention when commodity index funds are hit with redemptions or when other speculators decide to sell all commodities. On Monday, the DTN Spring Wheat Index came to $5.49 or 14 cents under the July Minneapolis futures contract. For the hard wheat varieties, cash bids averaged 22 cents under the July Chicago contract for Soft Red Winter Wheat ($4.68), and Hard Red Winter wheat's cash bids continue to crank tighter and tighter, to an average of only 7 cents under the July KC contract ($4.92). That is a jaw-droppingly strong basis level for this time of year, which is typically the gut-slot of Kansas HRW harvest, but in 2018 has been characterized by intense competition among cash grain originators seeking to fill bin space. Motivating farmer sales is no doubt challenging while the futures market keeps eroding, but these stronger basis bids have kept the average cash price for HRW above recent lows.

Elaine Kubcan be reached at elaine@masteringthegrainmarkets.com

FollowElaine on Twitter @elainekub

(KR)

Elaine Kub