Written Commentary
SOYBEANS
Headline risk moved to the forefront overnight after President Trump urged China to quadruple their bean imports from the US. While this message came just ahead of tomorrow’s tariff deadline, no extension was announced. The period from October to January is typically when China imports the highest volume of US beans. If that window closes due to the absence of a trade deal, it would certainly be a bearish blow and could cause Trump to lose some farm sector support. Headline risk through tomorrow’s tariff deadline with China will remain elevated.
SOYBEAN MEAL
The soymeal market has started the week on a strong note from tighter nearby supplies and a sharp rally in soybeans, following President Trump’s call for China to quadruple their bean imports from the US, sparking optimism Chinese demand could return soon. China was a large buyer of Brazilian and Argentine beans last week, reportedly 40+ cargoes, and some of those purchases are stretching into the fall window when the US typically sees its largest sales of beans to China. The US deadline for higher tariffs on China is tomorrow and there is no indication yet whether the deadline will be extended.
CORN
There is a higher start this morning for corn, lifted by a strong rally in beans and some follow-through short covering from last week. Trump’s overnight message to China about buying more beans has resulted in some minor support for corn this morning ahead of tomorrow’s August USDA supply and demand report.
WHEAT
Wheat markets are starting mixed this morning, slightly higher on Chicago and slightly lower in Kansas City. Last week’s short covering bounce gave the bull camp the edge into tomorrow’s August USDA Supply and Demand report, which will include US wheat production.
CATTLE
Extreme volatility in the cattle market was certainly evident on Friday with a limit down close on feeders and near limit down close in live cattle, resulting in expanded limits for both markets today. It is difficult to point to a single bearish news item that prompted the sharp break. However, the market had been very overextended to the upside, and profit-taking was likely a significant factor. December live cattle futures rallied more than $11.00, and November feeders gained more than $22.00 over the previous five trading sessions.
HOGS
Unlike the cattle market on Friday, hogs were quiet with a small range and below average trading volume. The China tariff deadline is tomorrow, and there has been no word on an extension as of yet. COT data showed Managed Money increased their net longs in hogs by 1,700 contracts as of Tuesday of last week, and Friday’s open interest fell a little more than 1,000 contracts. The market is waiting for new news for direction. Seasonal trends this month tend to be weak.
MILK CLASS III
September Class III milk finished with a weekly gain after climbing up to a 1-month high on Friday. The USDA reported that nationwide milk production is lighter, but it remains sufficient to meet industry demand
ENERGIES
While the crude oil market likely saw some selling from escalating global demand fear following a recent developing pattern of soft global data, the downside breakout and extension to the lowest level since early June on Friday was likely prompted by US/Russian talks scheduled for this Friday in Alaska.
With a “gap down” trade this morning and a new contract low, bearish fundamentals continue to dominate the natural gas market.
US gasoline supplies currently hold the only annual supply surplus of major US inventory measures. Furthermore, last week the US refinery operating rate reached the highest level since mid-2018 (96.9%) and with summer driving activity likely to turn down after the Labor Day holiday the threat of building US supply is significant.
DOLLAR INDEX
The September USD index is higher ahead of the Tuesday deadline for the US and China to strike a new tariff deal. Inflation data on Tuesday could determine whether the Fed will lower borrowing costs next month.
COCOA
Apparently, expectations for very favorable Ivory Coast crop conditions ahead have been discounted as cocoa has posted five straight “higher highs” since the quasi-failure at consolidation support in the first trading day of August.
COFFEE
With the coffee market (like cocoa) extending a significant August rally one gets the sense “soft commodities” are back in speculative vogue. Obviously, the US 50% tariff on Brazilian imports has sparked the bullish reversal this month with the global supply chain forced to scramble to work around the US tariff and the rally could be a false flag.
COTTON
Unlike cocoa and coffee, the cotton market is (at best) catching modest technical short covering and potentially misguided fundamental buying. In fact, the cotton market is fortunate to have respected recent consolidation low support given favorable US growing weather and a pause in the slide of the dollar.
SUGAR
Even the sugar market seems to have caught a lift from the sharp gains in cocoa and coffee. Apparently, the mere presence of US tariffs on Brazilian products creates a bullish vibe in a bearish market.
PRECIOUS METALS
Gold futures are sharply lower as investors wait for news from the White House on potential tariffs on the yellow metal and inflation data that will provide a steer on the Federal Reserve’s interest rate path. The White House said on Friday that it would issue an executive order clarifying its stance on the tariffs after it was reported that one kilogram gold bars would be subject to levies.
Silver futures are sharply lower, losing some of last week’s gains as a wave of profit-taking gripped investors ahead of key inflation data on Tuesday.
Copper futures are lower after Chile allowed mining to resume at Codelco’s El Teniente mine and the dollar strengthened, while the market awaited more clues on the path of interest rates.
EQUITIES
Stock index futures are steady as markets brace for a week with key inflation data, a summit between President Trump and Putin, and the expiration of the US-China trade truce, which is set to end on Tuesday. Attention will also be focused on President Trump’s sectoral tariffs on semiconductors, pharmaceuticals, and other goods. CPI inflation data on Tuesday will be the key piece of economic data for markets, with the potential to switch markets’ concerns towards the impact of tariffs on inflation.
INTEREST RATES
Futures are higher across the curve, with Tuesday’s CPI inflation data likely to be the main driver of price direction. Core CPI inflation is expected to rise by 0.3% in July, any reading above that could give the Fed a serious consideration to continue to hold rates in an effort to battle inflation, which is expected to rise throughout the rest of the summer and into the fall.
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