The Calm Before the Next Grain Market Storm

Another day of quiet consolidative trade saw all three markets traded both sides of unchanged and close with very small losses as volume and trader interest was low. Limited news remains the feature this week, but the weekly export sales report was solid while diplomatic news was lacking on either war. Crude and diesel suffered sharp losses early on profit taking after another round of contract highs in diesel were seen overnight. The markets will again prepare for a weekend of potential world diplomatic news, but all four sides appear dug in and progress toward ending either war is a long shot. Optimism continues to build as Treasury Sec Bessent will meet with his Chinese counterparts over the weekend to iron out the final details of next Thursday’s US/China trade summit in Washington.

News and Notes:

• The heavy rains from E NE through the Great Lake states continues with more expected over the weekend, but the potential problems for harvest or plant health have not had any bullish impact on prices. The impact of super El Nino conditions for SA is being closely monitored as planting gets rolling in earnest over the next few weeks, while the winter monsoon season was disappointing for India as well. In a month, the daily weather updates for Brazil will dominate the non-demand news.
• The December daily corn chart is again on Page 2 and shows today’s first meaningful attempt in a month to trade and stay below the 20-DMA (red line). After the early push below that support, end users, and speculative buyers were found to push prices to close on the 20-DMA. A potential bull flag formation is forming and if realized it would point toward new contract highs and a test of $5.75.
• Weekly export sales were solidly within expectations and closer to the higher end of estimates, but there have been no daily sales announcements this week. China’s bean purchase totals have now reached half of their 25 MMT pledge from the May trade meeting. One rumor that is affecting beans is that Chairman Xi is ill and may not be attending the Washington meeting, but if the rest of the trade team comes over, progress can still be made. Until the Chinese teams plane lands, the market will have a little cancellation fear.
• Beans are getting support from the other product in the crush as bean meal has been on a tear making new contract highs in each of the last 4 days while pushing to new 27-month highs. The massive demand for bean oil has produced additional bean meal, but instead on p[rices struggling with the extra supply, the feed demand for meal has been near record. Feed wheat, bean meal, and corn are all trading at multi-year highs and feeders are just trying to find the cheapest of the three to feed. Margins for processing beans and corn remain very profitable for both and are driving abnormally high harvest season basis levels. The strong basis is frosting on the cake of the best prices in 3-years.
• Neither war has had any positive progress this week with both intensifying. The Iraq backed Houthi rebels struck Saudi Arabia’s pipeline while Ukraine and Russia continue to target infrastructure with daily drone attacks. Today’s 20-cent pullback and then a swift 10-cent bounce off the lows in diesel is a good example of just how much buying is under the market on any 20-30 cent break.
• Cattle continues to be on a roller coaster with prices sharply lower in today’s trade and live cattle over $7 off early week highs with feeders $16 off the Monday highs. The Mexican border re-opening and flat to lower cash trade are hanging over the market after Sec Rollins announcement on Wednesday.

The more the bears trade the markets lower and fail to break them or find additional selling, the more positive the long-term outlook becomes. The bulls are obviously emboldened by a potential ag trade breakthrough at the US/China summit, but the more the bears try to break the markets and get punched in the nose and lose money, the less conviction they will have moving forward. Today’s small losses, despite the large pullback in the energy sector, shows that corn and beans are not just being supported by high energy prices. This is the calm before the next storm and with each passing day the storm looks to be bullish.