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Morning Market Review for Dec. 6, 2019

China says they will waive tariffs on U.S. soybeans and pork. (Comments are updated by 7:30 a.m. Central Time.)

Can China and U.S. reach a trade deal before Dec 15? Duane Lowry offers marketing insights below.

Overnight Trends:
At 6:16, cst:
March Corn= 2 higher
Jan Soybeans= 7 1/2 higher
March KC Wheat= 2 higher
March Chicago Wheat= 1 3/4 higher
Crude Oil= down $0.29
Mini-Dow= up 64
Gold= down $2.80
Dollar Index= up 3

Where are we for the WEEK? (As of yesterday’s settlements.) Mar Chicago Wheat= down 18 cents, Mar KC Wheat= down 11 1/2 cents, May Corn= down 4 1/2 cents, Jan Soybeans= up 7 1/2 cents, Crude Oil= up $3.26, Gold= up $10.40, Dow Index= down 395, US Dollar Index= down 83.

Weather will bring the coldest temps of the year to the Midwest next week. Weather has not been impacting day-to-day market action.

Global News:
Asian palm oil prices continue to climb, with today reaching the highest levels seen since April 2017. Declining production, rising consumption and ideas Malaysia’s biodiesel mandates will nearly double palm oil use for fuel are all adding pressure to prices during a timeframe where production is poised for cyclical reductions.

China’s Ministry of Finance said today that they are waiving punitive tariffs on U.S. soybeans and pork while the two sides negotiate a trade deal. I find it interesting that China’s state-run Xinhua News Agency said that waiving these tariffs are based on domestic demand. I have said it before and I will say it again—all of the soybeans and pork that China has secured from the U.S. during the past several months has been based on absolute necessity for the supplies, not based on any sort of “olive branch” diplomacy. All of this week’s oscillating news storylines regarding US/China trade talks still leaves us in the same position I described in Sunday Night’s Podcast, as well as Monday’s Morning Outlook. There is a much better chance that a Phase One trade will be completed prior to Dec 15, when US is scheduled to impose new sanctions on Chinese imports. China clearly needs US agricultural products and, truth be known, many Chinese now suggest that Beijing miscalculated and didn’t believe the trade dispute would have lingered this long.     

Today’s Support/Resistance and Expectations:


Expectations for Today> Significant support exists around yesterday’s low. Short-term technical conditions are poised to quickly reverse yesterday’s declines. Expect upside momentum to build in the days ahead. Corn spreads are poised to strengthen significantly during the next 75 days, with Dec20 the weakest link.

Today’s Support/Resistance and Expectations:


Expectations for Today> It has been a good week for soybean price performance, but we are nearing first definable resistance levels. U.S./China trade rhetoric may put some pressure on shorts heading into the weekend, which suggests that overnight strength may be setting the stage for a good performance today, fueled by short-covering activity. That said, since Monday’s low was established, we really haven’t experienced a meaningful short-term correction phase. We are into a tech-based resistance zone that could cause a short-term corrective setback. Between the balance of today’s trade and Monday’s trade, we are likely to experience a 7-12 cent type of correction. So, from where will it begin? I don’t know the answer to that question, but we are getting close to that point. More importantly, is this week’s price strength just a correction in a downtrend that will ultimately push to new lows, or was this week’s price action the beginning of a new uptrend and the culmination of selling pressures? I believe, with confidence, that it is the latter. Double-digit corrections in soybeans will begin to unearth tech-based buying interest.  
Inter-market spreads suggest that soybeans are historically extremely cheap, trading in the bottom 8% of relationship values to corn experienced during the past 12 years. In fact, at no time prior to U.S./China trade disruptions did soybeans trade at current price relationship values (to corn) in the past 12 years. If any narrative develops between now and spring US planting that suggests soybeans need to “buy” acres, the price strength required to do so will be very dramatic. Soybean Bears are playing with fire in a very bad way here. If they don’t realize that, then it is only because they are not a student of history—they have no concept of just how much “in the hole” they are establishing short positions here.    

Today’s Support/Resistance and Expectations:


Expectations for Today> Support is likely to keep building around this week’s lows, limiting the scope and sustainability of any near-term weakness.  

Overall Summary/Outlook:
U.S./China trade developments and hidden messages in officials’ comments, especially Chinese media’s selection of words, strongly suggests to me that both sides are moving towards accomplishing a deal prior to Dec 15. And, it is clear that China needs U.S. agricultural products. If we ink a deal and the agricultural trade returns to normal, with “normal” meaning the lack of tariffs, it will provide a very productive backdrop for U.S. farmers, but we will/may still face the realities that U.S. grains/soy production potential can still exceed demand.

Technical conditions are constructive and we have trapped bears with this week’s price performance. This should result in improved buying interest surfacing on setbacks, with this week’s lows in corn and soybeans unlikely to be seriously tested during the next few months. This week’s lows in wheat could be probed next week, but not in a meaningful manner.

We can experience some temporary day or two type of weakness, but overall conditions point to major bottoms being scored this week and good chances for improved prices to develop during the next 75 days.   

Duane has been involved in ag business and the futures industry since 1978. From an assistant manager at a large Iowa cooperative to a floor trader and broker in Chicago, Duane has worked with producers and grain elevators to manage futures, basis and spread risk. Duane has been writing daily market commentary since 1987 and currently works directly with producers to market their grain, manage risk and optimize their crop insurance decisions. Duane’ deep experience with basis, spreads and market analysis sets him apart as a crop insurance agent and risk management consultant, helping him to optimize producer marketing decisions.


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