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Tariffs, trade and the battle between supply and demand

By Doug Tenney, Leist Mercantile

Supply bulls and demand bears, two terms you have heard much about the past two months. Earlier this summer it was most apparent a huge tug of war was taking place in regard to corn prices. Supply bulls felt they had the upper hand in prices due to huge unknown prevented planted corn acreage. It was most obvious corn planting had been delayed with each release of the Monday afternoon weekly crop progress report from late April into the first half of June. Prevented planting for corn acres grew with each rain event. The supply bulls were utterly disappointed with the June 28 USDA Acres Report. Corn acres were several million acres higher than expected, a bearish surprise. December CBOT corn closed that day at $4.315, down 19.5 cents.

Demand bears could see corn planting was at a record slow pace this spring. Yet, they felt they could win the day, knowing demand was falling week after week. U.S. corn export sales and shipments were on the decline. It was evident Brazil was producing a record corn crop. Further demand reduction was apparent with a huge southeast U.S. pork producer securing cheaper corn from Brazil. Corn from Brazil was cheaper even with freight costs compared to rail from the Midwest. This purchase was for 19 million bushels or eight boats to be imported into North Carolina.

At the end of July, old corn basis levels were decades strong across Ohio. Many locations were a plus basis with numbers anywhere from 20 to 50 over the September. Several locations in western Ohio had seen basis weakening ten cents or more compared to earlier in July. Expect lots of volatility for both old and new corn into harvest.

Weak demand for corn, soybeans, and wheat with plentiful grain stocks around the world were negative for grain prices last month. Grains were all lower in July compared to June. Corn was down 24 cents for the month, soybeans and wheat down 40 cents for the month. Supply bulls were most frustrated as they expected prices to rally above $5 with corn prevented planted acres expected to be record high. Early August some are already suggesting it will take hot weather along with reduced yield to move December CBOT corn above its June 17 high of $4.73.

Late last month President Trump announced a 10% tariff on $300 billion of China goods imported into the U.S. would be effective Sept. 1. This follows the disappointing U.S./China trade talks, which ended days earlier. Our U.S. trade officials had been in China desperately working to secure a trade deal. Those talks ended with zero announcements. The lack of a trade deal was not a surprise to the market. The announcement of another round of trade talks in September was a yawner with no price movement.

U.S. Midwest weather was non-threatening for much of July with cooler than normal temperatures. Weather and weak demand combined for a powerful dynamo, leaving supply bulls gasping and sputtering for air, exclaiming, “What about acres?” It reminds us a bull needs to be fed every day. Bullish news has been lacking much of the summer. In an arena of growing world stocks for corn, soybeans, and wheat, a one-hit, one time wonder of prevented planted U.S. corn acres, supply has had monumental difficulty battling demand and weather.

The August 12 Monthly Supply and Demand Report is awaited with much anticipation. The market has been starved for fresh news in the weeks following the bearish June 28 Acres Report. It will be October and later before the market has a stronger grasp on corn and soybean acres and yields. The long, drawn out planting season will result in a normal start to harvest for some while it will be delayed for others. Expect a longer and later harvest season than normal.

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