Special Market Update

The big story in the grain market over the last month has been the relentless short selling by speculators, particularly in wheat. Chicago wheat futures have fallen a full dollar per bushel over the last 30 days. Corn has also seen heavy selling pressure but there has been some consumer buying on the way down which has held values relatively in check. Soybeans broke through trendline support and are slowly rolling over. The total managed money short in corn, soybeans, wheat, meal and soybean oil is estimated to be over 400k contracts. This is highly unusual in front of the US growing season.

It has become apparent that the market has finally given up on trade talks with China. There have been no specifics offered as we continue to get generalized statements about the progress of talks. We also have a situation where Trump, Lighthizer, Kudlow and Mnuchin continue to contradict each other on a daily basis. The final straw may have been the cancellation of a meeting between Trump and Xi in Florida later this month. At the same time, we are seeing some negative fundamentals from normal supply and demand observations. African Swine Flu continues to decimate the hog herd in China. The South American soybean crop will be larger year on year and the Safrinha corn crop is doing very well.

World wheat prices have collapsed in unison with Chicago which has prevented the US from participating in a larger share of world export business. From a producer perspective we would not be sellers today based on the current market composition along with the possibility of a trade resolution that comes out of the blue. We would look at replacing forced sales with long calls to take advantage of some type of short covering rally later.