Grain Markets Pause After Brutal Selloff, Now All Eyes Turn to China

After last week’s nasty start to June and weeklong losing streak, Monday’s markets were surprisingly calm with all three trading on both sides of unchanged through the session with wheat and corn slightly higher while beans were modestly lower. As all market participants change and update their strategies at these lower prices, the end user community is beginning to cover some summer feed and usage needs. The only end user that really matters is China, and they remained conspicuously absent from announced purchases or  making initial internal steps to lower US import tariffs. V bottoms will be hard to form unless some shockingly bullish news shows up quickly and Chinese demand could be that news.

News and Notes:

- Good US weather remains the outlook for the next 10-14-days with no signs of any expanding heat or dryness into late June. World weather remains largely non-threatening and will not matter much in price discovery if the US weather remains good through pollination.

- The daily July corn chart is on Page 2 and shows the last one month of trade and the precipitous collapse since the May 13th yearly and contract high at $5.06 1/2 to this morning’s low at $4.41. Enormously optimistic funds that overloaded in the inflation/China trade deal rhetoric trade were rudely awakened when China decided not to buy anything yet for the first month after the announcement. Normally a 65-cent break would be associated with the addition of roughly 550-650 MBU to ending stocks. China was rumored to agree to buy 380-450 MBU of corn under the new deal while crude oil was trading in a $98-$100 range. China has not bought any bushels (yet hopefully) and crude is only $6-$7 below a month ago. This highlights the part of the funds involvement that everyone must understand; markets always go further (both up and down) than makes sense because of the funds. If you did not complain when they were going up, then don’t get angry when they go down. The funds are trading our markets for different reasons than we are. Sell when they are buying and take coverage when they are selling is a good chapter to put in your marketing plan.

- This morning’s USDA daily sales report showed finally showed a bean sale to Unknown, which is usually China. If China was waiting for a fire sale in the world corn and bean markets to start following through on the trade deal agreed to last month. Since the trade bulls have gotten burned over the last 3-weeks, it will take more than a few small sales that may be attributed to China to reinvigorate their buying. Argentina’s record corn crop is still being harvested and Brazil’s safrinha crop is not seeing any problems, so Chinese demand in June/July would be counter seasonal, but welcome, nonetheless.

- Feeder and live cattle futures continue to have wild intraday swings as screw worm news is released and digested. After starting $2-$4 higher in early trade, a mid-day selloff lasted the rest of the day for losses of $3-$5. It appears a matter of when, not if, the screw worm parasite spreads further into the US and Mexican cattle herds. Canada stopped the import of US cattle today on that news. So far, there has been no optimistic news from any vet pharmaceutical company of a breakthrough vaccine.

- Weekly crop conditions appear to be a little bullish as both corn (67%) and bean (65%) conditions were under expectations of 69% and 68%. Planting is essentially complete for both crops with emergence on average for corn (86%) but ahead (79%) for beans.

Sometimes you have to say it was a good day just because things did not get any worse. This is the worst June start in many years and well ahead of normal seasonal action, but with the Chinese trade wrinkle not a normal early June factor, good US weather piggybacked on the negative trade sentiment to force the funds weak hands out of the markets. Any news that China drops their 10% tariff on US beans and grains in a move to open their purchase window will ignite an aggressive short covering and end user buying rally. After the month-long price swoon, if China was looking for cheaper prices, now would be a great time to test the market. We need it.