This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Markets are a little eerily quiet, trading mostly sideways. Soybeans did not waste much time rallying back from the selloff on USDA report day. China continues to buy soybeans at a very strong pace ahead of Trump and Xi’s meeting on Sept. 24. It is not expected that China will commit to buying more than the 25 MMT they agreed to last October. But the market is looking (hoping) for some specifics about the Chinese pledge to buy $17 billion of additional U.S. agricultural products. Commodity-specific details would give the markets a better idea of where we are going to see the new demand and can price it in. Bloomberg reported that the U.S. and China are discussing cutting tariffs on certain goods. If the Chinese cut the 10% tariff on U.S. soybeans and other ag products, it would open the door to some commercial purchases, not just government purchases. The Chinese state company Sinograin will auction corn out of the reserves on Friday. We do not know the size yet of the auction, but the bulls hope the Chinese are selling corn out of their state reserves to make room for more corn purchases from the U.S. after Xi’s U.S. trip.
Lack of major money flow in either direction has allowed the market to flatten out and trade sideways. As we head into harvest, sideways trade is a win. The Fed raised their interest rate target by a quarter point, which was widely expected by the market ahead of the meeting. The Fed is taking action to show it is serious about combating inflation, even at the risk of angering a certain U.S. president. That gives the Fed more credibility that it will do its job independently and not cave to political pressure. Commodities have benefited from the inflation trade from spec money, but that is not the only bullish factor in the market. The market still needs to ration demand, and higher energy prices keep strong margins in biofuels.
Markets will continue to look for direction. Consolidation is not a bad thing for a rally. The funds are already record long but can get longer if given a reason to keep buying. USDA’s Quarterly Stocks Report is less than two weeks away, on Wednesday, Sept. 30, at noon. That will give us the final old-crop carryout, and sometimes USDA sneaks in some changes on last year’s production. Keep working orders.