This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
If you feel like you have whiplash from watching the markets, you are not the only one. Last week we saw strength in the corn and beans from dryness in Argentina and too much rain in center west regions of Brazil that are trying to begin harvest. Then Trump revived the tariff headlines and made all the markets very nervous. He announced tariffs on China, Mexico and Canada and the markets struggled to figure out how to price in the news. We saw some selling on Friday but markets closed well off the lows to end the week. There was some back and forth over the weekend with both Canada and Mexico announcing retaliatory tariffs. China took a more softer tone than retaliatory. Grain markets opened sharply lower Sunday night but by morning beans were trading higher and corn was back to unchanged. What is difficult to tell is if the tariff news was priced in the market by midmorning when beans were trading higher and corn unchanged. Another possible explanation is that the market was expecting the tariffs to get rolled back, which is what ultimately happened today. As soon as it was announced that the tariffs on Mexico were being delayed by 30 days, corn jumped 5 cents higher and beans were up double digits.
The market’s job is to price in all the supply and demand and arrive at the “correct” price that balances supply and demand. That is a hard enough job on a good day. There is so much uncertainty of supply and now we have exponentially more variables. Buckle up for the volatility. There is still some probability of a full blown trade war that changes the way grain flows. If that happens, the market is going to have to reprice a lot of things. Or all this is noise and the market starts getting numb to headlines as new trade deals are hammered out. Fundamentally, corn is tight which should limit the downside risk, but now the funds have a very long position. If they decide to get out due to the uncertainty that could create some more downside risk than the fundamentals would point to. We have good basis and have had a good run in corn and beans futures. We should be taking some risk off the table on old and new crop. Work orders to limit your exposure. Some exposure is not always a bad thing but we do not want to risk our whole crop.