There will be nervousness today as we are approaching the end of the comment period for the Chinese tariffs. I expect we will hear on whether or not the US will move forward with 200 billion in additional tariffs over the coming, week, maybe even this weekend. It is very difficult to see US policy makers not moving forward with any threats at this point. USDA export sales came in at a paltry 92K bales for this marketing year. We saw decreases out of China while Turkey was absent again. Cotton exports are at 1/3 of what they were two months ago. Wheat sales came in at 379 KMT, right around where we have seen numbers come in the last two weeks. Corn sales for old crop came in at a marketing year low while new crop exports were seen above 1 MMT beating expectations, pointing further to a supply crunch global importers see coming. Soybean exports for old crop were almost nothing while new crop come in at 723 K right in the middle of expectations.
Cotton closed at its lowest level since mid August as funds liquidate. Traders are nervous over the demand prospects for US cotton from emerging markets with the huge hit to the spending power of consumers in countries which have seen a collapse in their currencies. I am not really that worried about longer run demand if the currency environment would change. US ag attaché to China had some comments yesterday on a decrease in cotton plantings over the coming year. They describe increased labor costs, stagnant yields, farmers’ greater crop choices and more labor opportunities in cities will be why they move away from cotton. No mention of increased need for soybean production as a reason, but I suspect that has to be included. China’s cotton stocks are expected to have fallen from 10 MMT at the start of 2017-18 to 6.58 MMT by the end of 2018-19, due to the drop in production and increased use of state reserves. China had mentioned before this whole tariff deal that they would be looking to double global imports from 1 million bales to 2 million, possibly even 3 million over the coming years.
Wheat markets continue to liquidate and look for that post-harvest low. Fund money is spilling out of wheat, which has lost substantial ground to corn and beans this week as prices have fallen almost 30 cents from Monday night, and down almost 1.00 since the middle of December. Gulf high pro wheat is now much cheaper than EU and Black Sea origin on a fob basis. In July, FOB wheat was offered almost 80 cents per bushel above Russia, it is now less than a dime. I think there could be a test of the high 480’s in December wheat before its all said and done but I would be buying calls on the way down.
December corn should remain steady into the USDA report as many believe we have seen the USDA high yield for the year. Early harvested corn in Illinois is somewhat disappointing, given the expectations many had for amazing yields. I spoke to 2 farmers yesterday who were expecting yield monitors to read in the 280’s, instead saw 265 (I’m not crying for you). We are talking about the top end yields here, not the middle of the road stuff that looks to be weaker. Its important to remember as well that global corn stocks are down 20% year over year (from 230 to 190) and are expected to fall another 20% next year (from 190 MMT to 150 MMT). While S. Am is obsessed with soybean plantings, corn may be the story. Below are monthly US corn exports through July, the market is not rationing supply one bit in a time when US corn exports are typically slow. Short term prices will have a tough time climbing above 380 but if the global story falls the right way, we could easily see a run to the 390s before July delivery. Corn harvest in Argentina is done, Buenos Aires Grain Exchange pegs yields at 31 MMT almost 25% lower than last year.
While the soybean markets are dumpster fire right now, we have seen a substantial amount of interest in US soybeans before the tariffs kicked in. Below is a chart of US bean exports as well as soybeans exported to China for both US and Brazil combined. Midwest cash are brutally weak ahead of harvest. Basis on Midwest river terminals have fallen to historic levels. My hometown of Davenport, IA is at 96 cents under, normally it is 30 under at this time. The board is lacking the need to selloff given the speculative length is almost nil and the harvest feels weeks away at the earliest with all of the rain we have been getting. Central Illinois is expected to receive a lot of rain this weekend which will keep folks out of the fields for a while.
Guide to Hedging with Grain and Oilseed Futures and Options
Download this complimentary booklet to learn how to integrate futures and options into effective hedging strategies. Learn the basics of hedging step-by-step so that you make better-informed trades!
The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.
Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.