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Reaction to Tariffs Was as Expected![]()
![]() Morning Summary: This morning’s headlines say it all. From the Wall Street Journal: 25% Levies on Canada, Mexico Take Effect. Reuters: China hits US agriculture, says won’t be bullied by fresh Trump tariffs. Also Reuters: Stocks, bond yields slide as Trump tariffs ignite new trade conflicts. The Washington Post: China puts tariffs on U.S. farm goods, blacklists American companies. The New York Times: Beijing Retaliates After Trump Sets Steep Tariffs on Mexico, Canada, and China. Given all that is going in, it’s no surprise gold added $30.80 overnight through early Tuesday morning putting April (GCJ25) back within sight of the all-time high of $2,974.00.
Corn: It’s not shocking the US corn market was under pressure again overnight. You shut down business with your largest buyer and these sorts of things happen. Once the tariffs against Mexico and Canada were put into effect overnight, the idea corn could see a recovery rally Tuesday evaporated. I can’t speak for you, but I find it interesting China is now the global power both Mexico and China can rely on to have their back. Okay, let’s look at this morning’s market. May lost as much as 5.75 cents overnight on big trade volume of 65,000 contracts. Selling came from both noncommercial and commercial traders, the latter indicated by the strengthening carry in the May-July futures spread. Can we believe what we see with the spread? Given July is showing trade volume of 37,000 contracts, I’d say yes. The spread was covering 38% calculated full commercial carry at this writing. Recall it was on Friday, February 14 this same spread covered 11%. The National Corn Index was calculated near $4.1725 Monday evening, down 10.0 cents for the day and putting national average basis at 39.0 cents under May futures as compared to the previous 5-year (and 10-year) low weekly close for this week of 40.75 cents under May.
Soybeans: Am I surprised by the break in the soybean market overnight through early Tuesday morning? Recall the Washington Post headline: China puts tariffs on U.S. farm goods…So yes, I am surprised by the soybean market pre-dawn. Not the fact it is lower, that was a given, but the fact contracts aren’t double-digit down. May dropped as much as 10.5 cents but was “only” 7.75 cents lower at this writing while registering 44,000 contracts changing hands. July fell as much as 9.75 cents on was down 7.0 cents to start the day on moderate trade volume of 17,300 contracts. What stands out to me with the US soybean market, though, is national average basis continues to firm. The National Soybean Index came in at $9.43 Monday evening, down 9.25 cents for the day after May closed 14.25 cents lower to start the week. Do I believe this change in basis? Not necessarily. I’ve seen too many times when the cash indexes struggle with large price moves while the official roll from one contract month to the next occurs. It’s a volatile combination, and sometimes more than the calculator function on computer programs can handle. We’ll see what happens over the coming days and weeks.
Wheat: I probably don’t need to tell you the wheat sub-sector was in the red again early Tuesday morning. While not immediately impacted by the latest trade troubles, the US has ample supplies of wheat on hand so anything perceived as damaging to demand will resonate with Watson. Recall the three major National Cash Indexes put available stocks-to-use at 44.9% (SRW), 44.2% (HRS), and 44.1% (HRW) at the end of February (also the end of Q3 2024-2025). If that isn’t enough bearish news for you, let’s talk futures spreads. In HRW, the new-crop July-September closed Monday covering 94% while the September-December covered 85%. That’s extremely bearish, and as I said in yesterday’s Afternoon Commentary, invites an increase in the official storage rate at some point. It’s a similar situation with new-crop SRW where the July-September covered 72% and the September-December 63%, with 67% the bearish threshold (though some have bumped it to 70%). Last but certainly not least, the old-crop May-July HRS spread covered 64% heading home last night while the new-crop September-December was covering 57%. Do I see anything changing with the sub-sector? No. It will be interesting to watch as the July winter issues get close to their respective contract lows over the coming weeks. On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here. |
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