“Peace On, Peace Off” Trade Keeps Markets Locked in Headline Volatility

Sharp early losses in crude oil pulled corn, beans, and wheat lower to technical support where recent sellers began to take profits allowing the raw material markets to cut losses significantly. The US equity markets all posted new highs in early trade on strong earnings and hope for a peace deal, before reversing when crude oil reversed. Daily trade direction remains entirely driven by US/Iran negotiations but with disappointing weekly export sales and uncertain expectations for next week’s US/China trade meeting, there are fewer bullish factors if peace is negotiated and crude oil falls back to more normal levels. 

News and Notes:

- Drier and warmer mid-day forecasts remain consistent for most of the Midwest and Corn Belt as US planting moves quickly along. Brazil’s safrinha weather remains non-stressful for 2/3 of the belt while recent rains have helped the drier areas.

- The December corn daily chart is on Page 2 and shows today’s sharp break to trade under the 20-DMA (red line) and the 50-DMA (black line) before finding technical support and buyers as crude oil rallied. Ignoring the outside factors of a possible peace deal, the technical picture is neutral to bullish as the correction stopped where it needed to and corrected the extremely overbought conditions (bottom two charts) from the April rally. The funds are still long, over 1.5 BBU but obviously were ready to defend their position at the 50-DMA. If Friday’s closes remain above both moving averages that were compromised today, the chart looks good, but possibly at a new lower range from $4.83 to $4.93.

- The US/China trade summit will be next Thursday and Friday in China and while ag specific news or purchases were announced this week ahead of the meeting, it was announced that the Chairman of Boeing aviation will be going with the President with China expected to purchase more big planes from Boeing. The old crop bean markets rallied strongly on Monday when confirmation of the meeting was announced but have since pulled back waiting on signed contracts rather than hope.

- The weekly export totals were not spectacular with all sales in the middle of pedestrian expectations with beans below. Weekly ethanol production numbers were also weak with only 299 Mga produced, which is 31 Mga below the weekly average to hit the USDA’s corn used for ethanol estimate.

To borrow a phrase from popular movie culture, the trade is moving entirely on “ Peace On, Peace Off” news and rumors. Corn’s technical bounce was explained above but a similar test of and bounce from important moving average support was also seen in July wheat, November beans, and June crude oil. Without a signed peace deal, a few quiet days in the Straits and a concrete plan to re-open the Straits, the charts will add another wrinkle in watching the markets and deciding on when to potentially add put options (set floors on rallies) or buyback bushels with call options (re-own on breaks) as part of your hedge strategy. The charts also work well to help set cash and futures sales targets in your marketing plan. Friday’s positioning will be driven by the latest news on the Iran/US peace talks, preparing for another uncertain weekend, next Tuesday’s May USDA update, and adding or subtracting trade premium ahead of the Trump/Xi trade summit next week.