June 25 – Wheat Prices Lead Grain Markets Lower

Good Morning!

Grain markets are all in the red this morning, led by wheat prices, as the broader market continues to try to price in the risk of a global trade war.

“In the future, instead of striving to be right at a high cost, it will be more appropriate to be flexible and plural at a lower cost. If you cannot accurately predict the future, then you must flexibly be prepared to deal with various possible futures.” – Dr. Edward de Bono (Psychologist)

graincents-trial

Wheat Prices Lead Grain Markets Lower

Grain markets are all in the red this morning, led by wheat prices, as the broader market continues to try to price in the risk of a global trade war. For perspective, only five commodities are enjoying a positive performance so far in June: feeder and live cattle, WTI oil, cocoa, and orange juice.

At the current prices in grain markets, there are a lot of ideas around re-ownership when it comes to hedging, either selling put options or just going long the futures. End-users/commercial buyers are likely looking to buy up the bottom of the current sell-off in grain markets. As a brutally honest reminder to the seller, the grain buyer, if hedged, doesn’t necessarily care what price you sell your grain in the cash market for.

The biggest thing we’re watching this week will be the acreage reports out from both Statistics Canada and the USDA on Friday at 8:30 AM and 12 PM EST respectively. We’ll be covering all the results in detail for our GrainCents readers.

Funds Go Net Short in Grain Markets

Starting the month of June, managed money was holding onto a heavy long position in the grain markets. However, the Commitment of Traders report indicated on Friday that this is no longer the case, as funds cut their losses or took profits and ran to the sidelines last week. For a few crops, this meant going into a net short position

More specifically, as we saw corn prices and soybean prices fall again last week, fund managers turned net bearish. For corn, this meant moving to a net short position of 14,038 contracts; for soybeans, hedge funds now hold a net short position of 12,801 contracts; for Chicago soft red winter wheat:

 

 

2018-06-22-corn-futures-funds-position

2018-06-22-soybean-futures-funds-position

2018-06-22-chi-wheat-futures-funds-position

Only Kansas City hard red winter wheat longs were able to survive the sell-off as hedge funds still hold a net long position of 47,213 contracts. That was down nearly 14,000 lots though week-over-week.

2018-06-22-kansas-wheat-futures-funds-position

A Recap of a Growing Global Trade War

The volley of trade tariffs that are being imposed or suggested is starting to accelerate. [1] To try to recap it for you, in the order of which the tariffs were announced (all values in USD):

Thursday, May 31: US President Donald Trump reinforces 25% steel and 10% aluminum tariffs, including the announcement that key trading partners Mexico and Canada will not be exempt. [2]

Thursday, May 31: Canada announces retaliatory tariffs on US steel and 10% tariffs on 84 other American goods, totaling nearly $13 Billion. [3]

Tuesday, June 5: Mexico announces tariffs as high as 25% on US cheese, steel, and Tennessee whiskey, as well as 20% on pork, apples, and potatoes. [4]

Friday, June 15: the US announces 25% tariff on 1,100 Chinese goods worth $50 Billion

Saturday, June 16: China announces 25% tariff on US goods, including soybeans.

Monday, June 18: Trump threatens additional $200 Billion of tariffs on China at 10% [5] He also suggests that if China doesn’t back down, there’s another $200 Billion of tariffs ready to go. This would tax about 90% of all Chinese goods imported by America.

Thursday, June 21: India suggests tariffs on many American food products, including chickpeas, walnuts, almonds, and lentils, worth $240 million. [5]

Friday, June 22: the European Union 25% tariff on $3.2 Billion worth of US goods, with another batch of tariffs worth $4.3 Billion waiting in the wings if the US doesn’t back down. [6]. As a note, the US and Europe trade just over $1.2 Trillion in goods and services every year. That’s Trillion with a “T.”

Friday, June 22nd: Russia threatens US with up to $538 Million in tariffs against the US in response to the steel and aluminum tariffs imposed by the US. [enter final]

I’m pretty sure I’ve missed some smaller items from other countries and maybe messed up on a date or two, but these are the major players in the game. At this point, most economists – and the general public – agree that this is getting ridiculous.

To growth,

(albeit I’m not entirely sure that’s possible with the number of tariffs negatively impacting markets right now)

Brennan Turner

President | CEO
FarmLead
TF: 1-855-332-7653
contact@FarmLead.com
@FarmLead or @GrainCents on Twitter

At 7:30 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3289 
CAD, $1 CAD = $0.7525 USD)

Sept Corn: -3.3¢ (-0.89%) to $3.633 USD or $4.828 CAD
Aug Soybeans: -9.5¢ (-1.06%) to $8.905 USD or $11.834 CAD
Aug Soybean Meal (per short ton): -$4.50 (-1.32%) to $335.50 USD or $445.86 CAD
Aug Soybean Oil (cents per lbs): -0.01¢ (-0.03%) at 29.31¢ USD or 38.95¢ CAD  
Sept Oats: -1.0¢ (-0.42%)  to $2.373 USD or $3.154 CAD
Sept Wheat (Chicago): -10.0¢ (-1.98%) to $4.943 USD or $6.569 CADS
Sept Wheat (Kansas City): -10.5¢ (-1.98%) to $4.955 USD or $6.585 CAD
Sept Wheat (Minneapolis): -2.3¢ (-0.40%) to $5.588 USD or $7.426 CAD
Nov Canola: -$2.20 (-0.43%) to $11.593/bu / $511.20/MT CAD or $8.724/bu / $384.67/MT USD

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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