This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Corn and beans seemed to be trying to distance themselves from the Iran headlines and following crude until this week. The week started off with new highs in new-crop corn and beans as fund money poured into the ag commodity space. It was a reignition of the inflation trade. Energy prices have been working higher again, as there is a recognition that if traffic through the strait does not dramatically increase, there are going to be long-lasting supply chain issues. More issues than what the energy markets had been pricing in. Once energy products started making new highs without further escalation of hostilities, that is when spec money started flowing back into commodities as part of the inflation trade. Just when the market was starting to get some momentum to the upside, it all came crashing down on a headline. On Tuesday, Trump said the U.S. had made a proposal to the Iranians to end the conflict and he thought they were close to accepting it. He said if they did not, he would go back to bombing. The markets quickly reversed direction. Ag commodities were pulled lower as money flow reversed and spec money turned from buyers to sellers. We have been back in a state of limbo again since then without much new concrete news. There are rumors swirling about how close we are to a deal, but we have been hearing those since the very beginning of the conflict. The funds still have a very long position in the ag space, and there will likely be some more selling pressure if there is a deal announced.
The charts do not look good from a technical standpoint, with new highs on Tuesday night followed by a lower close in the trading session. However, there are some other bullish undercurrents that will come into play and help support the grains. The dry season has arrived in Brazil a little early and ended the growing season. It will end some of the later-planted corn before it finishes, which will take off some production. Additional production in Argentina may be able to offset, but only time will tell. It has been very wet and cold in parts of the Eastern Corn Belt, but U.S. planting is ahead of average, so the market will not get too excited about that yet.
Next week, Trump is supposed to travel to China to meet with Chinese President Xi and, as far as we know as of this recording, that trip is still on. The U.S. trade representative, Jamieson Greer, has been saying there will be several ag commodities that the Chinese will agree to buy in addition to more soybeans. The market wants to see something concrete and the enforcement mechanisms in an agreement. Next Tuesday, May 12, at noon, we get USDA’s Monthly Supply and Demand Report, which will be our first look at the new-crop balance sheets from USDA.