Bean Market Implodes as Trade Uncertainty and Oil Pullback Shake Bulls

The week started with sharp losses in all markets with old crop beans crashing to a limit down move as President Trump may request a one-month delay in the trade summit meeting with China due to the war in Iran which lead to concern about a delay in the EPA bio-fuel mandates to accelerate those losses. Crude oil also was sharply lower as some oil tanker traffic through the Straits of Hormuz occurred over the weekend with Iran offering a plan to let all ships sail except US ships in exchange for a cease fire. The across-the-board losses in the raw material sector did allow for a sharp rally in the world equity markets after a three-week losing streak. Upcoming market direction will be almost entirely determined by oil price action and whatever news or changes about the trade meetings with China that may develop. The volatility will remain historic with each tweet and news report potentially repeating today’s insanity in either direction.

News and Notes:

• The size of Brazil’s record bean crop was trimmed by both private and public sources last week but not enough to keep it from being a record. Although regional weather inconsistencies were cited, harvest is moving along at the 5-year pace with safrinha corn planting going well. Wheat was expected to trade higher overnight on the brutal cold wave hitting most of the US this week, but the potential damage was not enough to keep wheat from following corn and beans lower. There is no world weather issue to build a bullish story around heading into the second half of March.
• The daily May bean chart is on Page 2 and shows today’s wipeout limit down action as the speculators fled to the exits. Last week’s significantly overbought conditions and the long speculative fund position of 1 billion bushels were the perfect set up for any bad news to produce a significant correction. Funds were estimated to have sold 105 MBU today as the bullish enthusiasm evaporated and the overnight selling accelerated as sell stops were hit and the charts turned ugly. All of the March gains were wiped out in today’s trade and with eth funds still long about 1 BBU, the trade will be nervously waiting for any additional bad news and be more willing to sell any rallies now that they are likely losing money.
• Although the weekend meetings in Paris between key members of the US and Chinese trade delegations were reported as productive, President Trump’s statement that he would like to delay the meeting until after the war ended sent the soy markets reeling. The expectation was for another 280-300 MBU of old crop bean purchases by China as a show of goodwill before the meeting which were at best delayed and potentially dashed by a postponement. Whether President Trump is using China’s reliance on Iran’s oil as leverage in the negotiations can be debated, a long-term delay in the trade talks takes out one of the main bullish legs from the bull’s stool.

Rewarding the rally and waiting for the inevitable crash has been the industry stance since the war started and today qualifies as justification for that strategy. The bulls had gotten overly optimistic about sharply increased EPA use mandates for bio-fuel and additional Chinese old crop bean purchases in the next 2-weeks. They were reminded today that the pain of being wrong can be a lot worse than the benefits of being right. I hope everyone got caught up and has been aggressive on sales over the last 2-weeks, as today’s nasty reversal will take an even bigger bullish story as the recent chart buying bulls will become more hesitant to pile back in since they got kicked in the teeth today. Predicting what may happen from here will be even more challenging due to the inconsistent policy decisions in Washington, but continue to sell all rallies, especially in beans if a “Turnaround Tuesday” unfolds.