Turner’s Take Newsletter & Podcast | Trade War Causes Massive Ag Selling
NEW PODCAST | We just released a new Turner’s Take webinar. I talk about how the escalating Trade War (of words) caused Soybeans to trade 66 cents lower today, which also lead corn down 17 cents and HRW wheat down 27 cents. Click here to hear my expanded thoughts on the market move today on the latest Turner’s Take podcast!
US-China Trade Dispute | The market sold off relentlessly today at the open after the US (Trump) said he wanted $200 billion in new tariffs for Chinese goods. That happened last night and the market was down some when I looked around 9pm. Corn was down 5 and beans 20.
A few hours later China came back and said they would fight back. By the time we got into the office the overnight markets had corn down 8, beans 30 and wheat 15.
After the morning open the market went into a tailspin. Between 9:22 and 9:23 am central time (almost an hour after the open), soybeans were down 66 cents, only 9 cents away from limit down. Corn went down 17 cents (25 cent limit) and HRW wheat was down 27 (35 cent limit). This was the result of panic, huge margin calls, capitulation, and forced long liquidation.
Towards the end of the day the market came back and while we finished in the red, it was not nearly as bad as it was in the morning. Soybeans finished 20 cents lower, corn 2 lower, and HRW wheat 16 cents lower.
The uncertainty surrounding the grain markets and the US-China trade dispute is taking its toll on farmers and the ag community. I don’t know where China goes from here. The US put $50 billion of tariffs on China. China responded with $35 billion of tariffs on the US. Then the US comes back with $200 billion more. China cannot go toe-to-toe with us on this. The US wants Intellectual Property abuses observed and we are now at the point where I don’t see the US budging on this. China only has a limited number of weapons in the trade dispute so it will be interesting to see how exactly they respond.
Going forward the ag markets will be trading lower than what the supply and demand fundamentals suggest. Hopefully the US and China can get through this sooner rather than later
SOYBEANS | Soybeans traded down to nine year lows today. This just goes to show how important China is to the soybean trade and how great uncertainty can cause a panic in the market. The bad news is there are no solutions to this situation yet. The good news is the soybean market has traded to levels that seem reasonable if China puts tariffs on soybeans. Brazil was trading $1.50 over the CBOT for August delivery as of the close yesterday. That is a 17% premium over the board. It is probably at 20% now or higher – which means the market is now very close to pricing in the 25% tariff. At today’s lows US beans were about 25% below Brazil based on the Monday cash prices.
As long as Brazil’s prices stay stable I think we have the lows of soybeans in the market. We could go back to $8.40 in the front month but I find that unlikely.
CORN | Corn is making lows that we typically see as we head into harvest. If you look at the chart below we have been making lows at the end of August when Sept contracts go into delivery. Highs are usually put in during this time of year. The market is very concerned about the trade disputes and sent front month corn this morning to $3.38. These were prices we saw over the winter as we went into delivery (before the Arg weather issues). Back then we had the crop made and were concerned with a 2.4 billion carryout. Now the USDA has us at a 1.6 billion carryout and we haven’t even been through pollination yet. Corn makes the least sense to me right now and once we get a trade agreement between the US and NAFTA/China corn should get a very big boost.
I am hearing that corn yield could be 180 to 183 based on the current GD/EX ratings this crop is a long way off from being made. At a 178 yield and current demand we are still around a 1.8 billion carryout. Dec Corn should be closer to $4.00 instead of $3.75.
WHEAT | I have some real concerns with wheat. Corn and soybeans are trading at relatively bargain levels historically but wheat is still elevated. We are trading this high because of the protein issues and smaller crop for HRW and HRS wheat. On the flip side we are not that competitive in the export market. We have a lot of wheat on the balance sheets and the longer the US trade disputes last the more concerned I get for wheat prices.
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