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Grain Markets Sharply Lower Sunday Pre-Market After Trump Announces Potential Tariff Hike On China

Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma
Andrei Evbuoma
Commodities, energy, oil & gas, research analyst

Agricultural commodities poised to open lower on Monday after President Trump increases pressure on China.

Active weather pattern expected to continue across the southern Plains and Lower Mississippi Valley through week 2.

Weather to turn more favorable for farmers week 2 across the northern corn belt in the medium range.

Investment Thesis

With Sunday's announcement of trade tariffs on China, selling pressure will increase on the grain markets, specifically corn and soybeans.

Trade concerns will drive the markets lower this week; weather will turn favorable for spring wheat producers (over next couple of weeks) and northern belt farmers (week 2)

Grain futures were seen lower pre-market Sunday evening amid threat of tariffs on China coming late week. The U.S. July corn futures were seen pre-market down 2.90% to $3.5938. July soybeans were down 2.11% to $8.2362, and July wheat was down 1.18% to $4.2838. Figure 1 below is a price trend chart of the front-month July futures contract for soybeans since Friday.


Figure 2 below is a price trend chart of the front-month July futures contract for corn since Friday.


On Friday, the U.S. July corn futures closed flat up only 0.03% to $3.7012. U.S. July soybean futures finished Friday down slightly 0.22% to $8.4112, while U.S. wheat closed down 1.41% to 4.3775. For the less volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was flat, up only 0.01% ($0.001) to $15.33, the Teucrium Soybean Fund (SOYB) was flat at $14.91, and the Teucrium Wheat Fund (WEAT) was down 26.68% ($1.83) to $5.03.

July Chicago Soft Red Winter Wheat (SRW) futures were seen down 6.4 cent to $4.374, with July Kansas City Hard Red Winter Wheat (HRW) futures down 3.6 cents to $4.012, resulting in a bearish 36-cent premium of CBOT wheat to KCBT wheat. MGEX's Hard Red Spring Wheat (HRSW) May contract finished up $1.02 to $5.052, while the July contract finished higher $0.086 to $5.206, and the September contract higher $0.082 to $5.292.

On the weather front, the pattern will remain active (stormy) across the central U.S. over the next 7 days. The storminess does subside in week 2 or in the 8-14 day across much of the corn/soybean belts. The next two weeks prove favorable for spring wheat as precipitation will be near normal levels. Overall, spring wheat planting progress should begin to pick up in the coming reports, while areas across the southern U.S. or southern corn/soybean belts (namely Texas and the Delta) will likely see progress stalled or slowed. Much of the corn/soybean belts in week 2 will see improvements. Figure 3 is a map showing the seven-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Figure 4 is a map from the 12z GFS ensemble depicting wetter-than-normal (in green) precipitation over much of the corn and soybean production centers, and drier than normal (in yellow) conditions over the spring wheat belt over the next seven days.

Source: Tropical Tidbits

Figure 5 is a map from the 12z GFS ensemble depicting drier-than-normal (in yellow) precipitation over much of the corn, wheat, and soybean production centers, in the 6-12 day outlook.

Source: Tropical Tidbits

The lead driver, however, will be the news on the likelihood of trade tariffs being placed on China. On Sunday, President Donald Trump announced he will hike U.S. tariffs on $200 billion worth of Chinese goods this week and target hundreds of billions more soon.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.